Heineken NV (HEIA), the world’s third- biggest brewer, offered as much as $6 billion for full control of Asia Pacific Breweries Ltd. (APB) to prevent one of Thailand’s richest men from muscling in on a vital emerging-market asset.
Heineken, which owns 42 percent of APB, said today it will seek to acquire the outstanding shares in the Singapore-based maker of Tiger beer, mainly a 40 percent stake owned by Fraser and Neave Ltd. (FNN) Fraser & Neave, or F&N, said it’s considering an offer from the Dutch company, though there’s no certainty that an agreement will be reached.
Heineken, which has been involved with APB since 1931, proposed paying as much as S$7.5 billion ($6 billion) to protect its position after Thai Beverage Pcl (THBEV), controlled by billionaire Charoen Sirivadhanabhakdi, this week offered to buy a 22 percent stake in F&N. A company owned by his son-in-law Chotiphat Bijananda is acquiring about 8.4 percent of APB. Brewing assets in high-growth emerging markets are in short supply following a decade of consolidation in the industry.
“Heineken’s been spurred into action by what happened this week,” said Ian Shackleton, an analyst at Nomura in London. “They may succeed with their bid, but our view is that they’re going to have to pay more than they’ve offered now. What’s very clear is that the status quo is not a long-term solution.”
Heineken, responding to what it described as a “sudden development” when Oversea-Chinese Banking Corp. (OCBC) agreed to sell the stakes in Fraser & Neave and APB into Thai control, will fund any bid through existing cash and new debt facilities, John-Paul Schuirink, a spokesman, said by phone today.
The deal would be the Amsterdam-based company’s largest after offering $7.4 billion in 2010 for the beer operations of Coca-Cola bottler Fomento Economico Mexicano SAB, or Femsa.
“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,” Goh Han Peng, an analyst at DMG & Partners Securities in Singapore, said by phone. “If Heineken had not responded, over time Thai Bev could have increased its stake in F&N and really controlled the interest.”
The S$50 a share bid is 19 percent above APB’s closing price yesterday of S$42 and more than the S$45 that Bijananda’s company is paying for a stake. The average premium paid in 45 takeovers of beermakers announced in the last two years is 25 percent. The stock, along with F&N, was suspended from trade today. Heineken shares rose 1.1 percent to 43.50 euros at 1:05 p.m. in Amsterdam.
The purchase would be the latest step in the consolidation of the industry as brewers buy each other or seek full control of joint ventures. Anheuser-Busch InBev NV (ABI), the world’s biggest brewer with an 18 percent share of the market, bid $20.1 billion for the remaining 50 percent of Grupo Modelo SAB last month, tightening its hold on the Mexican market.
“We’re going to see less M&A in beer as there’s less to be done, but prices are going to go up,” Nomura’s Shackleton said. “It starts to raise a bit of a question about whether you can add value in these deals.”
The APB deal is expensive for Heineken from a valuation perspective and the Dutch company may have to raise its bid to satisfy Thai Bev and Kirin Holdings Co. (2503), the Japanese brewer which owns about 15 percent of Fraser & Neave, according to 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 amortization 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,” 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 alcoholic drinks will increase and consumers will trade up to premium products.”
Heineken, which accounts for about 8.8 percent 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 percent of operating income came from western Europe last year, the data show.
APB would fit better with Heineken’s assets than in Charoen’s Thai Bev empire, said Hugh Young, Singapore-based managing director at Aberdeen Asset Management Asia Ltd.
“It’s Heineken’s DNA as a business,” Young said. “Yes, the Thais brew beer as well, but Heineken has really been the founding father” of APB. The S$50 a share offer was “quite high,” he said.
Aberdeen owns 7 percent of OCBC, from which Thai Bev bought its 22 percent stake in F&N. The fund manager also owns less than 1 percent of F&N and less than 0.1 percent of APB.
Chareon’s holdings of publicly traded assets are worth $6.1 billion, according to data compiled by Bloomberg. Thai Bev’s shares rose 7.4 percent to 36.5 Singapore cents at the 5 p.m. close of trading in the city-state, the highest since May 4.
It’s Heineken’s “right to move,” Vichate Tantiwanich, a Thai Bev spokesman, said today in a mobile-phone text message, adding that the Thai company’s purchase of the F&N stake would “go on.” He said the company will “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 Fraser & Neave makes it the biggest shareholder before Thai Bev’s purchase is completed, according to data compiled by Bloomberg.
Hajime Kawasaki, Kirin’s spokesman, declined to comment.
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