Asia Inc Oct 1994

BUSINESS: Yeo Hiap Seng feud

oct 1994

Pyrrhic Victory
A bitter feud has split Singapore's Yeo Clan, creating uncertainty for the family's renowned food and beverage company.

Alan Yeo didn't know whether to laugh or cry when he stepped out of the High Court of Singapore in late June. The presiding judge had somberly ruled that Yeo could dissolve the private investment holding company that bound together the shares of Singapore's Yeo family. The unmaking of Yeo Hiap Seng Holdings marked the climax of a family feud that began in 1991. The battle ended three generations of family unity that enabled the Yeos to flourish in the Chinatowns of Southeast Asia and beyond.

"This is a Pyrrhic victory for Alan," says a cousin in the rival camp. Alan Yeo, 63, saved his job as chairman of publicly listed Yeo Hiap Seng Ltd. (YHS) -- which literally translates to Yeo Unite to Succeed -- but for how long? He heads a $ 165 million food and beverage company with an uncertain future.

The Chinese adage, "the first generation builds, the second preserves, the third destroys," rings true. But in traditionally consensus-seeking East Asia, the Yeos' is the first battle over a family business fought in the glare of publicity.

YHS, like many successes in the region, had become too large and diversified to be run as a family business. According to Alan Yeo, too many family members interfered with the running of the company. He says they expected to be consulted on every major decision -- a violation of the Singapore stock exchange's disclosure requirements. The way he sees it, breaking up the holding company was necessary because the spirit of family partnership had been destroyed.

Within a week of the ruling, he sacked three relatives who had collectively worked for YHS for 67 years. Among them: board member Charles Yeo, a former senior vice president whom his uncle Alan had once identified as a potential successor. Charles had led the movement to oust Alan.

Things weren't always this rancorous. At the height of family unity, most of the 46 surviving Yeos worked for YHS -- a business started in China's Fujian province by patriarch Yeo Keng Lian at the turn of the century. After moving to Singapore in 1935, the family set up a sauce factory. Despite stiff competition from other players such as Tai Hua Food Industries, Sinsin Food Industries and Woh Hup Food Industries, the Yeos grabbed market share with a strong distribution network. Even as business flourished, the Yeos stressed the importance of family. They had a saying: "We are as close as our own flesh and blood. We must be united from the beginning to the end."

YHS went on to become so successful that in 1987 Alan Yeo, head of the company since it went public in 1969, was named Singapore's Businessman of the Year. The award presenters praised the clan for being "a superb example of a family-controlled business" that others could emulate. Soon Yeo was appointed chairman of the Trade Development Board (TDB) and invited to join the boards of government-linked companies like Keppel Bank and Neptune Orient Lines. He was leading TDB delegations to new markets. But while he was winning the war for Singapore, he was losing the battle at YHS.

The slow deterioration at YHS came to a head in 1991. That year the company posted its first loss, $ 800,000, largely due to red ink from its U.S. subsidiary, Chun King. YHS and Temasek Holdings, the investment arm of the Singapore government, had bought the troubled American manufacturer of canned Chinese food in 1989.

The $ 52 million Chun King acquisition, spearheaded by Alan, was a disaster from the start. Analysts and family members alike felt YHS had overpaid. They were right. In four years, the subsidiary has posted loses totaling $ 36 million. The company's products have lost much of their appeal in the U.S., where even the smallest towns now have take-away Chinese restaurants.

Mistrust began replacing kinship. This year a group of Yeos began attempts to push out Alan as chairman. Its reasons: the Chun King fiasco, his inability to choose a successor and alleged autocratic leadership and bad management.

Alan fought back, going directly to the shareholders. In a letter to them in June, he wrote: "You can make a difference. Protect your investment. Vote against my removal." He also hired public relations firm Burson-Marsteller. Overnight his autocratic image was transformed. The Straits Times newspaper promptly wrote a fawning profile of him.

In public he contemptuously derided his rebellious kin as "kids running around without their pants on" while he had been building the company. By winning the suit to dissolve YHS Holdings, wholly owned by the Yeo clan, Alan and relatives loyal to him freed up their 18.2 percent stake in YHS Ltd. from the family investment block. Otherwise, the nearly 21 percent held by the other Yeo group, and therefore the majority in the holding company, easily could have voted to get rid of him.

Amid all this, YHS's stock price became increasingly volatile, and shareholders' ire rose. One disgruntled investor wrote in Singapore's Business Times: "When will the Yeo family stop boring us and get on with running a company that is quite obviously going downhill?"

With the battle over -- at least for the moment -- Alan Yeo says it's back to business. "The dissolution of the holding company was very sad," he says. "However, that is all behind us now, and we look forward to implementing the exciting plans we have in place." They include the sale of money-losing Chun King (YHS recently took a $ 30 million write-off on the company) and a joint venture with PepsiCo Inc. to explore markets in Indochina and China.

Even greater hopes are tied to the redevelopment of a 4.4-hectare site at Bukit Timah, a former tin mine, on which two YHS plants sit. Because of government rezoning, the factories have to be torn down by 1998.

With the wooded area around the factories rapidly developing into desirable, upscale residential units, YHS plans to develop a condominium complex on its $ 180 million plot of land.

The project could yield a windfall. Hong Kong's potential loss in the run-up to 1997, when the territory reverts to China, could be Singapore's gain. The republic's residential and commercial property markets are expected to remain buoyant.

China's food and beverage market also looks promising. In two years the mainland is likely to overtake Singapore as YHS's biggest revenue earner. Says a sobered Alan Yeo: "A listed company's priority lies with its shareholders and employees, not the family -- no matter how painful this might be."