ThaiBev Complicates Heineken’s Bid for F&N

Posted on September 6, 2012


ThaiBev, Thailand’s largest beverage alcohol company, owned by billionaire Charoen Sirivadhanabhakdi, revealed on Tuesday, August 28th that it has purchased another 2.6% stake for $252.4 million in Fraser & Neave (F&N) raising its stake to 29%. Because of this, it is still possible for them to block Heineken’s bid F&N’s stake in Asia Pacific Breweries (APB). Heineken already owns 42% of APB but it wants to increase its share in Asia’s quickly growing markets, such as Singapore, Thailand and Indonesia by buying out the rest of the business.

Heineken has offered $4.5 billion for F&N’s stake in Asia Pacific Breweries (APB), the makers of Tiger Beer (AFP/File, Pornchai Kittiwongsakul)

The fate of APB will be decided at the next F&N shareholder’s meeting, which is likely to happen in October. There they are expected to decide whether they should sell their stake in APB, a joint venture between F&N and Heineken, to the latter or not. If they decide to vote in favor of sale then Heineken will become the owner of Asia’s goldmine in the brewery industry the incredibly popular Tiger Beer.

Heineken also aims to diversify its business with expansion on other continents. The European debt crisis has forced its domestic consumers to reduce their spending. The company has been looking elsewhere to increase its revenues, especially in markets where the beer industry is getting stronger. In Vietnam, for instance, beer sales for the current year are expected to touch $4.6 billion. If Heineken is able to successfully acquire APB, then its market share would increase significantly. APB’s Tiger Beer and other brands already own half of the total market share in Indonesia, Singapore and Malaysia. Diageo is pumping investment into this region as the company owns 45% of Asia Pacific’s spirit market. Indonesia is now its sixth largest market for Guinness, for example.

If ThaiBev’s holding in F&N, which currently stands at 29%, crosses 30%, then under Singapore law, it would be required to make a bid for complete ownership of F&N. Although ThaiBev is now F&N’s largest shareholder, it will have to come up with around $11 billion to buy out F&N which is worth only $9.8 billion, more than twice ThaiBev’s own market value. The more likely outcome is ThaiBev trying to influence other primary shareholders of F&N to stop Heineken’s bid. F&N’s management has said that it would distribute$3.1 billion to the shareholders if the company is sold to Heineken.

Heineken’s bid is valued at $6.33 billion through which it will buy F&N’s stake in APB, and also those shares in APB that are held by others.

The world’s largest producer of beer and wine, Diageo (NYSE: DEO), is their biggest competitor in the region and has an entrenched strategy of both buying stakes in and then working with local dominant distributors to insert its brands, Guinness in the case of beer, all over the target country. They’ve done this very successfully in places like Vietnam; buying a major stake in Halico and capitalizing them.

In many ways this move by Heineken can be seen as a pre-emptive move into Southeast Asia to fend out Anheuser-Busch InBev (NYSE: BUD) who bought Grupo Modelo for $20.1 billion in July; shoring up their portfolio and distribution in a crucial current and future market.

The beer and liquor industry is best represented by the SPDR S&P International Consumer Staples Sector ETF (NYSEMKT: IPS) which is weighted 21.2% towards beverages and approximately 17.5% of AUM is devoted to brewers/distillers. Since the beginning of the year has outperformed the SPDR S&P 500 ETF (NYSEMKT: SPY) 21.1% versus 14.4% while paying a competitive 3.0% dividend. F&N and ThaiBev are listed on the Singapore exchange (SGX). F&N is a component of the FTSE Straits Times Index, the Dow 30 of Singapore.

Heineken has its work cut out for it, keeping pace with Diageo whose stock is up 25.7% year to date. Currently the world’s third biggest brewer, Heineken’s battle for APB started six weeks ago when Charoen stepped up to try and become the largest shareholder in F&N; forcing Heineken to up its bid. Emerging markets are the key behind the growth of the liquor industry, both Heineken and Diageo are fully aware of this. Diageo has worked tirelessly in this region and its execution has it among the top performers of FTSE 100 for the current year. The company is also planning on listing in Hong Kong as it aims to get 50% of its revenues from emerging markets by 2015, up from 40% now.

Heineken wants nothing less; therefore it continues to fight aggressively for APB and looks prepared to do anything to close the deal. In its last quarterly filing, APB had revenues of $619 million, growing 15% year- over year with the lion’s share coming from Southeast Asia. Southeast Asian countries consumed more than a third (35.3%) of the global beer volume in 2011, growing from 34.4% in 2010. At the price that Heineken is paying for APB this is a foundational deal for them, overpaying to play catch-up to their rival Diageo in the region while heading off Anheuser-Busch and setting themselves up to serve biggest expansion of the middle class in human history.

Peter Pham