Heineken takes on Charoen with $6bn bid
•Published: 20/07/2012 at 08:33 PM
•Online news: News
Heineken NV, the world’s third-biggest brewer, is preparing to offer as much as US$6 billion for Singapore-based Asia Pacific Breweries Ltd to block Thai billionaire Charoen Sirivadhanabhakdi from building his influence in the maker of Tiger beer.
Heineken, which owns 42% of Asia Pacific Breweries (APB), has proposed paying as much as S$7.5 billion ($6 billion) to buy out other shareholders in the Singapore company, including the 40% stake held by Fraser and Neave Ltd (F&N).
Thai Beverage Plc, controlled by Mr Charoen's TCC group, this week offered to buy a 22% stake in F&N, while a company owned by his son-in-law Chotiphat Bijananda is buying about 8.4% of APB. The Japanese brewer Kirin Holdings owns 14.7% of F&N.
AFP Photo
Shares of two companies linked to Mr Charoen fell yesterday on the Stock Exchange of Thailand in response to the news. The green tea market leader Oishi Group Plc (OISHI) dropped 1.2% to 160 baht. Berli Jucker Plc (BJC), another affiliate of Mr Charoen's flagship ThaiBev, lost 3.6% to 40.50 baht, its biggest loss since since March 22.
ThaiBev shares, which are listed in Singapore, rose 7.4% to 36.50 Singapore cents on Friday, their highest level since May 4.
Analysts said the move could trigger a takeover battle with Thai and Japanese investors for control of APB, which makes Tiger beer and other brands that are popular across Asia, including the Chinese market.
Besides the Singaporean Tiger brand, APB has rights to brew Bintang beer in Indonesia, Anchor in China, Southeast Asia and Sri Lanka, and Heineken from China to New Zealand.
F&N said in a statement it was considering the Heineken offer "which remains open for acceptance" until July 27.
"There is no certainty that any transaction or agreement will be entered into as at the time of this announcement," it added.
Heineken and F&N have been longtime partners in Asia.
The deal proposed by Heineken would be the Dutch company's largest acquisition after offering $7.4 billion in 2010 for the beer operations of Coca-Cola bottler Fomento Economico Mexicano SAB, or Femsa.
Heineken, which has been involved with APB since 1931, is trying to stop Mr Charoen from seizing control at a time when brewing assets in high-growth emerging markets are in short supply following a decade of consolidation in the industry.
"In the past, Heineken was quite comfortable in the partnership with F&N, but the entry of Thai Bev really changed the dynamics of the relationship," said Goh Han Peng, an analyst at DMG & Partners Securities in Singapore.
"If Heineken had not responded, over time ThaiBev could have increased its stake in F&N and really controlled the interest."
Heineken CEO Jean-Francois van Boxmeer said in a statement that the changes in APB’s and F&N’s shareholder lists meant the "fabric of the partnership" over APB had changed.
The Dutch company "will review all options available to protect its commercial interests" if it wasn’t able to agree a "consensual deal" with F&N, the company said.
Fraser & Neave said in a statement that it was considering Heineken’s offer, though there's no certainty that an agreement will be reached.
The bid by Hweineken is for S$50 a share, 19% above APB's closing price yesterday of S$42 and more than the S$45 that Mr Chotiphat's company is paying for its stake.
The average premium paid in 45 takeovers of beer makers announced in the last two years is 25%. APB shares, along with F&N, were suspended from trading on Friday in Singapore.
The deal is expensive for Heineken from a valuation perspective and the Dutch company may have to raise its bid to satisfy ThaiBev and Kirin Holdings Co, the Japanese brewer which owns about 15% of Fraser & Neave, said Dirk van Vlaanderen, an analyst at Jefferies International Ltd.
The transaction values APB at about S$13 billion, or about 17 times the S$754 million in earnings before interest, tax, depreciation and amortisation the company recorded in the 12 months to the end of March.
In nine brewery takeovers worth more than $1 billion over the past five years, the median multiple for the same pretax earnings measure has been 13, according to data compiled by Bloomberg.
Heineken’s offer is "a very full price in our view and may still need to go higher", Mr van Vlaanderen wrote in a note.
Rising incomes in emerging markets make them attractive for beer, wine and spirits companies, who expect consumption levels to rise over time to match developed markets, said Thomas Jastrzab, an analyst for Bloomberg Industries in Hong Kong.
"You have large populations with a higher proportion of younger consumers combined with an expanding middle class," he said by phone. "As incomes rise consumption of
drinks will increase and consumers will trade up to premium products."
Heineken, which accounts for about 8.8% of the global beer market, has the smallest emerging-markets presence of the world's big three brewers, according to data compiled by Bloomberg. About 37% of operating income came from western Europe last year, the data show.
APB would fit better with Heineken's assets than in the Thai Bev empire, said Hugh Young, Singapore-based managing director at Aberdeen Asset Management Asia Ltd.
"It’s Heineken’s DNA as a business," he said. "Yes, the Thais brew beer as well, but Heineken has really been the founding father" of APB.
Aberdeen owns 7% of Oversea-Chinese Banking Corp (OCBC), from which Thai Bev bought its 22% stake in F&N. The fund manager also owns less than 1% of F&N and less than 0.1% of APB.
It's Heineken’s :right to move", ThaiBev spokesman Vichate Tantiwanich said, adding that the Thai company’s purchase of the F&N stake would still go ahead.
He said the company would "make the deal friendly", declining to give further details.
Kirin isn’t likely to block Heineken's bid for APB, according to Mikihiko Yamato, deputy head of research for JI Asia in Tokyo. Kirin’s stake in F&N makes it the biggest shareholder before Thai Bev's purchase is completed, according to data compiled by Bloomberg
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