Fraser & Neave (F&N) announced that Thai Beverage has raised its stake in Fraser & Neave from 24.1% to 26.2%. In a filing with the Singapore Exchange, F&N says that International Breweries Holding, a wholly owned subsidiary of Thai Beverage, has bought a total 29.53m shares in the company.
Our view: The increased stake of Thai Beverage in F&N is important because F&N is a major owner of Asia Pacific Breweries (APB) (targeted by Heineken). This will increase the challenge for Heineken to gain control of APB.
As a reminder, Heineken and Fraser & Neave each hold a 50% stake in Asia Pacific Investment Pte Ltd, which holds a 64.8% stake in Asia Pacific Breweries (APB). Furthermore, Fraser & Neave holds a direct 7.26% stake in APB and Heineken holds a 9.49% direct stake. The remainder (18.44%) of APB is listed on the Singapore Stock Exchange. Kindest Place Group, a company owned by a son-in-law of Charoen Sirivadhanabhakdi, the owner of Thai Beverage, has recently purchased a 9% stake in APB that was part of the 18.44% free float.
What happened before: We recall that Heineken has proposed to acquire long-term partner F&N's 40% direct and indirect stakes in APB for S$ 50 a share. Fraser & Neave’s Board has already announced to recommend its shareholders to vote in favour of the proposed offer from Heineken for its direct and indirect interests in Asia Pacific Breweries (APB) and the non-APB assets of the joint venture Asia Pacific Investment Private Limited. However, the positive recommendation announced two weeks ago is only an agreement in principle and was said to be subject to successful negotiation and execution of definitive transaction documents between Heineken and F&N. Meanwhile, Fraser & Neave has also received an offer from Kindest Place Group for F&N’s 7.26% direct stake (18.8m shares) in Asia Pacific Breweries (APB) at a price of S$ 55 per APB share. F&N’s board needs to choose between Kindest Place Group’s offer for part of its APB stake (7.26% stake at S$ 55 per APB share) or Heineken’s offer for F&N’s full APB interests (39.66% stake at S$ 50 per APB share).
Conclusion: Thai Beverage has been gradually building its interest in F&N since July, giving it a bigger say on Heineken's offer. F&N’s board needs to choose between Kindest Place Group’s offer for part of its APB stake (7.26% stake at S$ 55 per APB share) or Heineken’s offer for F&N’s full APB interests (39.66% stake at S$ 50 per APB share). We think that Kindest Place Group is playing a poker game. We believe they hope to push Heineken to raise its APB offer to S$ 55 per share. At that price Kindest could then sell their 9% APB stake once the mandatory offer on the 18.44% minorities is launched. Heineken still has good cards in our opinion to get away with the S$ 50 bid price, given the fact that about 30% of APB’s volumes (and presumably a higher part of profit) is coming from the Heineken brand whereas Heineken could at a fairly low cost take back the Heineken licence out of the APB JV, which would then mean APB would then loose 30% of its volumes immediately. We maintain our BUY rating with a € 50 TP.