Oversea-Chinese Banking Corp. (OCBC), Singapore’s second-biggest bank, and its insurance unit received an offer for their S$2.7 billion ($2.1 billion) stakes in a drinks maker and a brewery partly owned by Heineken NV. (HEIA)
OCBC and its Great Eastern Holdings Ltd. unit are in talks with the bidder, whose name wasn’t disclosed in the exchange filing yesterday. The stake in Fraser & Neave Ltd. (FNN), Singapore’s biggest beverage maker was worth S$2.04 billion as of yesterday, and their share of Asia Pacific Breweries was valued at S$709 million.
Fraser & Neave shares jumped 4.6 percent to reach a record today, adding to a 6.8 percent surge over the last two days, while Asia Pacific Breweries also climbed to an all-time high. Beer makers globally are consolidating to bolster sales and the world’s largest brewer Anheuser-Busch InBev NV in June agreed to buy the remainder of Mexico’s Grupo Modelo SAB for $20.1 billion to expand in emerging markets.
“On the face of it, it looks like an offer intriguing enough for the bank to think about,” said Sam Hilton, a Hong Kong-based analyst at Keefe, Bruyette & Woods Asia Ltd. “If the deal goes through, there are going to be capital issues on what they do with the proceeds: Do they invest in something else or distribute it as special dividends.”
OCBC and Great Eastern hold 18.2 percent of Fraser & Neave and 7.92 percent of Asia Pacific Breweries, according to their statement to the Singapore stock exchange yesterday. The two companies “will make appropriate announcements at the relevant time should circumstances merit such announcements,” they said.
Shares of OCBC, which owns about 85 percent of Great Eastern, increased 1.2 percent to S$9.29 as of 11:46 a.m. local time. Great Eastern (GE), Singapore’s biggest life insurer, climbed 4.5 percent to S$13.60, the largest gain in more than two years.
Asia Pacific Breweries rose 3.5 percent to S$35.90, advancing 26 percent this year. Fraser & Neave jumped to S$8.26, bringing its gain for the year to 33 percent. The Singapore benchmark Straits Times Index added 14 percent in 2012.
Fraser & Neave trades at 15.7 times earnings, while Asia Pacific Breweries is valued at a multiple of 24, exceeding the 10 times price-earnings ratio for the Straits Times Index, according to data compiled by Bloomberg.
The beverage maker said in May its second-quarter profit dropped 21 percent to S$103.5 million from a year earlier, following a charge for terminating a proposed divestment in China. Demand in Asia and policy easing are expected to push growth in the region, which may offer opportunities to expand, Fraser & Neave said at that time.
Goh Han Peng, an analyst at DMG & Partners Securities Pte in Singapore, said Kirin is a “logical buyer” because of its earlier investment in Fraser & Neave. “Assuming the buyer is indeed Kirin, it would have to contend with possible counter- offers from the more deep-pocketed Heineken Group, as well as to line up financing for a mandatory takeover of F&N once its stake crossed 30 percent,” he said, adding that yesterday’s announcement was unexpected.
Kirin spokesman Kan Yamamoto declined to comment. Heineken NV’s international press office in Amsterdam couldn’t be reached outside of regular hours.
Jennifer Yu, a spokeswoman for Fraser & Neave, couldn’t be immediately reached for a comment. Shirley Poo, a spokeswoman for Asia Pacific Breweries, couldn’t immediately comment. Both companies separately issued OCBC and Great Eastern’s statement to the Singapore exchange late yesterday.
SABMiller Plc, the world’s second-biggest beermaker by volume, agreed to buy Foster’s Group Ltd. in Australia last year for about A$10.5 billion.
In China’s fragmented beer market, overseas companies are acquiring or setting up new breweries across the country to widen the reach for their premium brands. Kingway Brewery Holdings Ltd., controlled by the Guangdong provincial government, put its assets up for sale in January. Kingway in June said the acquisition talks are continuing, without specifying potential buyers.
“If you look at beer makers’ profitability, the more share they have, the more margin they get,” said Masashi Mori, an analyst at Deutche Bank AG in Tokyo. “So both internally and externally, the size expansion is the tried and true tactics for beer makers.”