Heineken NV, the world’s third-biggest brewer, raised its offer for a controlling stake in Asia Pacific Breweries Ltd. to S$5.6 billion ($4.5 billion) to prevent a company linked to a Thai billionaire from disrupting its takeover plans.
The Dutch beer maker, which already owns 42 percent of Singapore-based APB, agreed to buy Fraser & Neave Ltd.’s 40 percent holding in the brewer for S$53 per share, up from an initial bid of S$50, according to a statement yesterday. F&N’s board advised its shareholders to accept the offer, the company said in a statement to the Singapore exchange today.
At S$53, Heineken is “trying to seal the deal,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London.
Heineken wants control of the Tiger beer maker to protect its hold over a key emerging-market business and as brewing assets in high-growth economies are in short supply after a decade of consolidation. The brewer began taking steps to protect its position in July after Thai billionaire Charoen Sirivadhanabhakdi’s Thai Beverage Pcl bought a 22 percent stake in F&N.
If F&N shareholders approve the sale, Heineken will offer as much as S$2.5 billion for the remaining APB shares, the Amsterdam-based brewer said.
F&N’s board has agreed not to solicit, engage in discussions or accept any other offers for its interest in APB, according to Heineken’s statement. Singapore-based F&N has also agreed to pay a break-up fee of about S$56 million if the transaction isn’t completed in 120 days, it said.
“The sale of F&N’s stakes in APB in its entirety to Heineken at the improved price would better maximize overall returns for F&N shareholders,” F&N Chairman Lee Hsien Yang said in today’s statement. The company is considering options to return some of the proceeds to its shareholders, it said.
Trading in APB and F&N stock will resume Aug. 21, the companies said today. Heineken shares fell 1.5 percent to 43.14 euros in Amsterdam trading yesterday. They have advanced 21 percent so far this year.
Selling the stake in APB’s brewing business could draw interest from buyers in other parts of F&N, which also has soft-drink and real-estate operations. Japan’s Kirin Holdings Co., which has a 15 percent stake in the Singaporean company, has said it is interested in F&N’s soft-drink and food businesses. Coca-Cola Co. has explored a bid for the drinks operations, several people with knowledge of the matter have said.
Heineken will not increase its final offer, which it believes provides “compelling value” to both F&N and APB shareholders, the company said in its statement. Its Asian headquarters will remain in Singapore and it is committed to growing the Tiger brand, Heineken said.
“They’re paying a large multiple for a business where 30 percent of the volume and 40 percent of profit is from their own brand,” said Pablo Zuanic, an analyst at Liberum Capital Inc. in New York, referring to the S$53 price before the agreement was announced. He rates the shares hold.
Heineken was spurred to make an offer for Asia Pacific Breweries last month after Thai Beverage agreed to buy a 22 percent stake in F&N. That holding has now risen to 26 percent. Kindest Place Groups Ltd., owned by Sirivadhanabhakdi’s son-in-law, this month bought an 8.6 percent stake in APB and subsequently offered to buy 7.3 percent of the brewer from F&N for S$55 per share.
The moves would potentially have infringed on the Dutch company’s influence over its brewing operations with APB, which has rights to brew Bintang beer in Indonesia, Anchor in China, Southeast Asia and Sri Lanka, and Heineken from China to New Zealand. The deal would be the company’s largest after offering $7.4 billion in 2010 for the beer operations of Coca-Cola Co.’s bottler Fomento Economico Mexicano SAB, or Femsa.
Heineken, which controls about 8.8 percent of the global beer market, is seeking to expand in faster-growing regions such as Southeast Asia amid weak consumer spending in the developed markets of Europe and the U.S. The company 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.
For Heineken, buying APB “strategically makes sense,” said Samar Chand, an analyst at Barclays Capital in London. “It gives them control and ensures that adequate investment will go into their brands, throughout the region.”
The world’s biggest brewers are trying to secure emerging-market assets and seal joint ventures across the globe. Heineken’s offer comes on the heels of Anheuser-Busch InBev NV’s purchase of the rest of its Mexican partner, Grupo Modelo SAB, for about $20 billion.
“ABI and SABMiller have been the consolidators and Heineken’s approach was to take minority stakes and sell its brand through them,” said Zuanic. “They’ve been forced to join the consolidation bandwagon.”
The danger of failing to secure control over assets was illustrated this year when Heineken lost out to AB InBev over Cerveceria Nacional Dominicana of the Dominican Republic, the brewer of Presidente beer. Heineken held a 9.3 percent stake in the company, which AB InBev acquired for about $1.24 billion.
If Heineken failed to win control of APB, “the market and investors may be disappointed that Heineken has missed out yet again on another fast-growing, emerging-market asset because of its perceived conservative M&A strategy,” said Chand at Barclays.
There were 194 mergers and acquisitions of brewers in Asian emerging markets over the past decade, with a total value of $17 billion, according to data compiled by Bloomberg. Japanese buyers were the most active, led by Kirin’s $1.37 billion acquisition of a 43 percent stake in San Miguel Brewery Inc. in 2009, the data show.
Thai Bev said last month that the F&N stake will allow it to expand its “non-alcoholic product portfolio” and to diversify geographically. The Thai brewer could also benefit from any dividends that F&N pays out from the sale of its stake in APB.
Credit Suisse Group AG and Citigroup Inc. were financial advisers for Heineken and will also arrange a bridge facility to help fund the proposed transaction.