A war is brewing...(poll response needed)

One of the most exciting corporate battles is heating up in the history of Singapore. The crown jewel is obviously Asia Pacific Breweries. A listed company majority held by both Fraser and Neave ("FNN") and Heineken. Unfortunately, APB was also made famous by the fraud of one of its ex-employee, Chia Teck Leng.

It first got a bit complicated when Temasek sold its stake to Kirin from Japan. Kirin has been relatively quiet and in typical Japanese culture, non confrontational. While Heineken wasn't too happy, it was happy to let status quo reign.

The event that toppled this balance was when OCBC decided that it was time to "divest" it's non core stakes under the new CEO. Obviously for it to divest at a maximum price, it has to find a buyer that appreciates the value of both FNN and APB. Here comes Thai Beverage founder and owner of the Chang Beer. Now we have a spicy Thai flavor added to the brew! Thai Beverage bought FNN at $8.88 per share and a related party bought APB at $45 per share. Do note that Thai Beverage is paying a premium in terms of valuation vis-a-vis other listed peers including its own valuation.

Heineken then made an offer to FNN for its APB stake at $50 per share. The offer was supposed to expire last Friday but has since been extended for another week. I can imagine the FNN board must be very busy this period so that they can discharge their fiduciary duties in a proper manner.

Kirin bought its 15% stake in FNN at $6.50 per share. It will record a nice gain if based on the 22% stake of $8.88 paid by Thai Beverage. However, i don't think Kirin is after monetary gains. Thai Beverage continues to buy FNN from the open market and has now acquire 23.9% stake in the company based on the latest announcement to SGX. Kirin has yet to announce its intention. Kirin has hired Deutsche bank as its advisor has a few options. It can (1) Do nothing; (2) Make a general offer for FNN; (3) Sell its stake in FNN to interested parties.

What are the 3 possible outcomes for FNN.

FNN has engaged Goldman Sachs to advise them on the bid by Heineken. Based on the current projections, at $50 per share, it is valuing APB at 33x FY12PE. The offer is not an unfair one. FNN directors will be hard-pressed to explain to minority shareholders if they are going to reject the deal. Thus GS will also have to come up with a solid explanation as well as to why $50 is not an attractive proposition. After all, if FNN divest APB, it is like selling the goose that lays the golden egg and the attractiveness of FNN may decline. On the other hand, FNN and Heineken's relationship has been rocky in recent times and this may present the most face-saving way to part.

What do you think will likely happen in the next 5 days?

1. A new bidder appears

Either Kirin or Thai Beverage joins the fray and throw in a bid for APB at more than $50 per share. 

2. F&N accepts the $50 bid and put the transaction up for shareholder's approval.

If GS propose to sell APB and the board of FNN agrees to accept, then this transaction will be put up for shareholders' vote which will include Kirin and Thai Beverage combined stake of around 38.9%.

3. Reject the $50 bid on the basis the bid does not 'fully value' APB. 

Most likely FNN will use another valuation model, maybe DCF model, to justify why the bid is unattractive to FNN and request Heineken to either keep quiet or pay more for the stake.

I put up a few recent research reports for your reference to make a more informed poll. 

Nomura 25 Jul 12
DB 23 Jul 12
BNP 19 Jul 12

Please take a poll to indicate your views:

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