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HAS Auric Pacific, controlled by Indonesia’s Lippo Group, overpaid for its stake in retailer Robinson?

Last Thursday, Auric said its unit will buy a 29.9 per cent stake in Robinson from OCBC for $7.90 a share - a 17 per cent premium to Robinson’s $6.75 closing price the previous day and 18.6 times the group’s FY 2005 earnings.

The counter yesterday shed 20 cents to close at $6.55 - not surprising now that talk of a takeover battle that boosted the stock has come to nothing.

Yesterday’s price drop makes Auric’s purchase price look even pricier. But the Riady family, which controls Lippo and Auric, is looking at the longer term. The Riadys see great value in the Robinsons trade name - and intend to extract value from their investment by taking that name to markets like Indonesia, China and Malaysia.

Ultimately, it will be the Riadys’ ability to help Robinson expand into these markets that will determine whether Auric has overpaid.

But what are Robinson’s chances of success outside Singapore? After 148 years, its presence in other markets is not much to shout about.

In fact, its entire overseas operation comprises two Marks & Spencer stores in Malaysia run under a franchise agreement.

One of its biggest missed opportunities has to be giving up a 100,000 sq ft department store spot in Kuala Lumpur’s Suria-KLCC mall, which it secured in 1996. As the mall’s opening neared in 1998 - during the Asian financial crisis and amid a retail space glut - the group got cold feet.

‘That was a mistake. Short-term it would not have been profitable, but long-term it would have been profitable,’ Robinson’s former CEO Peter Husum told BT in 2004 as he was leaving the group.

Perhaps that decision was not Mr Husum’s alone? Perhaps having a conservative major shareholder like OCBC made Robinson less daring when it came to risking a full-fledged store in KL - even though OCBC has been a passive shareholder that steered clear of day-to-day operations.

It should be a different story with Lippo and the Riadys on board. Lippo controls Indonesia’s largest listed retailer Matahari, so the Riadys have a feel for the business.

Lippo also has extensive property interests in Indonesia, which should help Robinson clinch store locations there. And the Riadys have business connections elsewhere in the region, such as Malaysia, Hong Kong and China. Lippo has teamed up with Malaysian tycoon Ananda Krishnan’s Astro group to tap Indonesia’s pay-TV market. It also has a joint venture with China Resources involved in property investment and development and equity investment.

In Singapore, Robinson’s current management, headed by John Cheston, has not sat idle while waiting for OCBC to sell its stake.

It has secured new M&S locations in Malaysia, where the number of M&S outlets will double to four by the end of next year.

Robinson will also nearly double the sales floor at the existing M&S store at Suria-KLCC in the next few months.

This expansion of the M&S business follows the strong response from shoppers to permanent price cuts introduced last year at M&S outlets in Singapore and Malaysia.

Robinson is also understood to be studying prospects for M&S stores in Vietnam.

And management is believed to be once more considering a Robinsons department store in Malaysia - this time at an extension to the Mid Valley mall in Petaling Jaya opening next year. But Robinson will have to weigh this matter carefully, given the mid-to-upper department store market in Malaysia is already crowded with players like Metrojaya, Parkson and Sogo.

In contrast, a Robinsons department store would face less competition in Indonesia. And that market has a ready base of shoppers among well-heeled Indonesians who visit Robinsons during their trips to Singapore.

The group would probably find it tough to export its John Little format overseas, given that there are so many lower-priced retailers established in the region.

Prospects for expanding the M&S format are also limited, as Robinson only has the franchise for the brand in Singapore and Malaysia. There are already M&S outlets in most parts of Asia - except China and Indochina. And principal Marks & Spencer Group plc may have its owns plans to enter China.

So the Robinsons department store is likely to be the key engine to drive the group’s overseas expansion.

In this regard a remake begun last year - to again sell more exclusive merchandise at higher prices in the Robinsons stores - is a step in the right direction. With lower-priced formats crowding the Asian retail scene, building the image of a more upmarket Robinsons department store should give the group a better chance of standing out - in Jakarta or, who knows, even Beijing, Shanghai or Guangzhou.

Whether Auric has overpaid or bought an undervalued stock will be seen in the months and years to come.

Source : Business Times - 18 Apr 2006