Heineken announced it has made an offer to Fraser & Neave’s (F&N) board to acquire the latter’s direct and indirect interests in Asia Pacific Breweries (APB) at a price of S$ 50 per share, for a total consideration of S$ 5.1bn (about € 3.3bn). Furthermore, Heineken is offering S$ 163m for F&N’s interest in the non-APB assets of Asia Pacific Investment Private Limited.
Note that Heineken and Fraser & Neave each hold a 50% stake in Asia Pacific Investment Pte Ltd, which holds a 64.81% 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.
If the offer, which is conditional to F&N board approval and shareholder acceptance (the latter requires just a simple majority) as well regulatory approval, is successful, Heineken will make a mandatory offer for the remaining APB shares not owned by Heineken at that point, also at S$ 50 per share, for a consideration of about S$ 2.4bn (€ 1.56bn).
The bold move comes after the recent announcement by Thai Beverage to purchase a 22% stake in Fraser & Neave from Overseas-Chinese Banking Corp, its insurance subsidiary Great Eastern Holdings and Lee Rubber Co for S$ 2.78bn (or about € 1.8bn) as well as the purchase of Kindest Place Groups, which is controlled by Thai Beverage’s principal owner’s son-in-law, of an 8.4% stake in Asia Pacific Breweries for S$ 45 per share or about S$ 920m (approx € 598m).
APB has an interest in 24 operating breweries in 14 countries in South East Asia, and is the largest brewer in Singapore, Malaysia, New Caledonia, Indonesia, Papua New Guinea and the Solomon Islands. APB is number two in Vietnam, Cambodia, Sri Lanka, New Zealand and Mongolia. Furthermore, APB is the largest player in the Thai premium beer segment and the number two in the Chinese premium beer segment. APB sold about 16m hl and generated close to € 400m EBIT in 2011. Overall, Heineken’s stake in APB represented about 6.2% of group EBIT (beia) in 2011.
Our view:
APB for sure is one of the most attractive growth platforms of Heineken (along with the African and Mexican businesses). The bold move is a reaction of Heineken to the recent changes in shareholdership of F&N and APB. The offer values APB at about 19x EV/EBITDA11 which is at the high end of historical industry deals. Net debt to EBITDA (beia) would rise from an estimated 1.9x at year-end 2012 to about 3x upon conclusion of the full takeover of APB, which is still very manageable in our opinion. Given that we believe Heineken can take back the license on the Heineken brand from APB at a relatively low cost (note that the Heineken brand represents about 30% of APB’s volumes and presumably a higher part of profits), we think Heineken has good arguments to convince F&N’s board (and shareholders). Although the acquisitionwould not come cheap, we think it would be a good strategic move. We stick to our BUY rating and € 50 target price.