Yesterday, Fraser & Neave has 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.
We remind that 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 has recently purchased an approximately 9% stake in APB that was part of the 18.44% free float.
Fraser & Neave’s Board announced last Friday that it is recommending 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. We remind that Heineken launched an offer on 20 July for the above mentioned assets, at S$ 50 per APB share, valuing F&N’s 39.66% stake in APB at S$ 5.1bn (€ 3.3bn). Furthermore, Heineken is offering S$ 163m for F&N’sinterest in the non-APB assets of Asia Pacific Investment Private Limited. However, the positive recommendation announced last week 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.
F&N’s board will now have 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 as in our opinion 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 joint venture, which would then mean APB would then loose 30% of its volumes immediately. Bearing that in mind we think F&N’s board might still be tempted to accept Heineken’s offer for F&N’s entire interest in APB. From a Kindest Place Group perspective, we fail to understand –other then our scenario that they play a poker game in order to push Heineken to raise its offer –why they would pay approx 21x EV/EBITDA11 for an additional 7.26% minority interest in APB, knowing that Heineken can withdraw the Heineken brand from the APB joint venture as described above. We reiterate our BUY rating and € 50 price target on Heineken and think that yesterday’s negative share price reaction is a bit overdone.