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F&N Climbs Above Charoen Offer, Heineken Mulls Next Move

Fraser & Neave Ltd. (FNN) rose above Thai billionaire Charoen Sirivadhanabhakdi’s offer price as investors speculated that the Singapore-based company may attract a higher bid and Heineken NV (HEIA) considered its next step in a two-month battle to gain control of F&N’s beer business.

F&N advanced 4.8 percent to S$8.92 at the close of trading in Singapore yesterday after a company linked to Charoen’s Thai Beverage Pcl (THBEV) offered S$8.88 a share for the 70 percent of the company that he doesn’t control. The bid, which potentially blocks Heineken from buying Tiger beer maker Asia Pacific Breweries Ltd. (APB), values the company at $10.3 billion. F&N rose in Singapore trading today.

“There’s a prospect that someone can come in with a better offer,” Justin Harper, a Singapore-based market strategist at IG Markets, said in a phone interview. “There’s also the prospect that if Charoen takes over F&N they will unlock a lot more value by breaking the company up.”

Charoen, 68, set off a scramble for F&N and its assets when he agreed to buy a stake in July. Heineken countered with a bid for F&N’s 40 percent stake in APB, which the Dutch brewer already partially owns. Charoen hasn’t explained the rationale behind his offer, which comes ahead of a Sept. 28 meeting where F&N shareholders will vote on Heineken’s proposal.

“Thai Bev’s plans for FNN if it manages to buy out a majority stake remains unclear,” Jenai Chua, a Singapore-based analyst at Bank Julius Baer & Co., which manages $281 billion in assets, said by e-mail. “We would not rule out the possibility that it is trying to block the sale of APB to Heineken.”

F&N advanced 0.6 percent to $8.970 at 9:37 a.m. in Singapore trading, boosting its climb this year to 45 percent.

F&N Counter Offer?

Heineken’s options may include making a counter offer for F&N, either by itself or with a partner, said Goh Han Peng, an analyst at DMG & Partners Research Pte in Singapore.

Were Heineken to make such a bid, the main risk would be finding a buyer for F&N’s property business amid a difficult economic climate, Melissa Earlam, an analyst at UBS AG, wrote in a note. Without a partner, “we believe Heineken’s balance sheet would be too stretched to counter-bid,” she said.

Japan’s Kirin Holdings Co., which also owns a 15 percent stake in F&N, had considered making a bid for F&N’s food and soft-drinks unit, several people with knowledge of the matter said in August. Coca-Cola Co. has explored a bid for the drinks operations, people with knowledge of the matter have said.

Heineken, which owns 46.3 percent of APB, won’t walk away from the deal as the Amsterdam-based brewer wouldn’t be able to realize its ambition of becoming a global brewer, Goh said.

“Giving up is out of the question,” the analyst said. “If Heineken makes an offer with another party, the possibility of a break-up is higher.”

Emerging Markets

The Dutch company, the world’s third-largest brewer, has sought full control over APB to protect its hold over a key emerging-markets business. Heineken has the smallest presence of the world’s big three brewers in developing regions such as Asia and Latin America, according to data compiled by Bloomberg.

Heineken in August raised its offer for APB to S$53 a share from S$50 and said it won’t increase the bid. The $4.4 billion offer followed a S$55-a-share bid from a company controlled by Charoen’s son-in-law for a 7.3 percent stake.

Yesterday’s offer for F&N “makes it even more unclear how Heineken can ever gain control of the APB asset,” Earlam said.

F&N said in a Sept. 12 presentation to investors that Heineken’s offer for APB is “higher than the corresponding multiples for recent precedent transactions.”

Bid Multiple

Investors may balk at any increase in the price to gain control of APB, Earlam said. The multiple, valuing APB at about 21.5 times earnings before interest, tax, depreciation and amortization “set a new record in terms of major brewing M&A,” Earlam said. Anheuser-Busch InBev’s bid for control of Grupo Modelo SAB was at 17 times, she estimated.

Heineken will review ThaiBev’s statement and comment when appropriate, spokesman John Clarke said in an e-mail.

Heineken rose 0.2 percent to 43.03 euros at the close of trading in Amsterdam yesterday. ThaiBev rose as much as 1.5 percent to 34.5 Singapore cents.

The bid battle is likely to be a straight fight between Heineken and ThaiBev, Julius Baer’s Chua said.

“Given the advanced stage that the bidding war has progressed to, any interested parties would already have made their intentions known,” he said.

Purchasing F&N would widen Charoen’s influence in Asia. His brewer, which is F&N’s largest shareholder with a 29 percent stake, got almost all its revenue from Thailand in 2011, according to data compiled by Bloomberg.

While the billionaire’s bid is the largest announced by a Thai company in at least a decade, according to data compiled by Bloomberg, he may still need to increase the price.

“The price is not convincing,” Donald Chua, an analyst at CIMB-GK Pte in Singapore, said in a note, adding that the potential for higher offers from ThaiBev will act as a catalyst to F&N shares. “We advocate waiting for further developments.”

To contact the reporters on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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