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Heineken And Thai Beverage Deal Fuels Beer Sector Consolidation « Back
Selina Harrison, November 2012
After months of uncertainty, in the middle of September Dutch brewer Heineken NV and Thai billionaire Charoen Sirivadhanabhakdi called a truce on an ownership battle for Singapore conglomerate Fraser and Neave (F&N) and its beer business Asia Pacific Breweries (APB). Set on protecting their respective territories in Asia’s fast-growing beer market, Heineken secured near complete ownership of APB in a S$5.6bn ($4.5bn) deal, while Mr Sirivadhanabhakdi’s company, Thai Beverage (ThaiBev) has made a similar move for F&N. However, while this saga has occupied headlines in recent months, it only highlights the continued consolidation of the global beer sector, which for the past 18 months has witnessed an abundance of M&A activity.

During this time, dealmaking in the Asian, European and Latin American beer markets has been rife. In June last year, following a hostile bid, British beverage company SABMiller finally persuaded Australia’s Foster’s Group into a A$9.9bn takeover.

Asahi Group Holdings, Japan’s largest beer maker by volume, also threw itself into the Oceania region with gusto. In July last year, the beer producer paid $309m for New Zealand drink maker Charlie’s Group Ltd. and $200m for Australia’s P&N Beverages, before rounding off its acquisition trail with its bumper purchase of New Zealand beverage maker Independent Liquor for $1.3bn. While Asahi searched Oceania for deals, Kirin Holdings Co., Japan’s second largest brewer, turned its attention to Latin America, paying $2.5bn for a majority stake in Brazil’s Schincariol Participações e Representações SA, maker of Nova Schin beer.

This year beer deals have shown signs of a slowdown. In an attempt in April to bolster its presence in the European beer market, Molson Coors – a US brewer whose brands include Coors Light and Carling – agreed to buy Eastern European peer StarBev for €2.65bn from its private equity owners CVC Capital Partners. Then, in June, Anheuser-Busch InBev agreed to buy the share of Mexico’s Grupo Modelo – producer of Corona Extra beer – that it did not already own for $20.1bn, solidifying its position as the world’s biggest brewer.

As well as producing beer under its namesake Heineken, the world’s third biggest brewer owns the drinks brands Strongbow and John Smith’s. However, in August the firm reported that, compared with a year earlier, its half year earnings had fallen as higher volumes were outweighed by rising raw materials prices. Heineken reported that earnings before interest and taxes rose 4.3 percent from a year earlier to €1.16bn, but only on the strength of acquisitions and currency effects. Meanwhile Heineken’s earnings and revenues for the period missed analysts’ consensus expectations. Organic growth before exceptional items and amortisation fell 0.5 percent, while revenues rose 5 percent to €8.78bn. Net profits were up 30 percent to €783m, largely due to profit from the sale of a subsidiary.

Through an 81-year-old venture with F&N, Heineken already owned a sharing control of APB, the maker of Tiger Beer. However, the results highlighted the importance of Heineken’s struggle to keep control of APB, a fight which was in full swing.

The straining of relations between Heineken and Mr Sirivadhanabhakdi began in July, when, eager to divest non-core assets, Oversea-Chinese Banking Corp (OCBC) and its insurance subsidiary Great Eastern Holdings decided to sell their stakes in F&N and APB for a combined S$3.2bn. The two companies sold their combined 22 percent stake in F&N to Singapore-listed ThaiBev for S$8.88 per share (around S$2.3bn). Meanwhile, ThaiBev said it was also acquiring a 3.8 percent stake in F&N held by Lee Rubber Company, bringing the company’s’ stake in F&N to around 22 percent.

At the same time, OCBC and Great Eastern agreed to sell their combined 8.6 percent stake in APB to Kindest Place Groups – an affiliate of ThaiBev owned by Mr Sirivadhanabhakdi’s son-in-law Chotiphat Bijananda – for S$920.2m, or S$45 a share. According to Forbes business magazine, Mr Sirivadhanabhakdi is the third-richest person in Thailand with an estimated fortune of $6.2bn. With the bulk of his money coming from his beverage business, he appeared to be targeting F&N from two angles.

Eager to recapture market share and up its 42 percent stake in APB, on 3 August Heineken offered to buy F&N out of its joint venture in APB, which at S$50 per share for the indirect 40 percent stake valued the business at S$5.1bn. However, just days later Kindest Place Groups made a surprise offer for F&N’s direct 7.3 percent stake in APB at S$5 per share more than Heineken had agreed to pay.

For a long time there was concern that, as founder and chairman of ThaiBev, Mr Sirivadhanabhakdi would try and block the deal. Further, on 13 August OCBC and its units said the sale of its stakes in F&N and APB to ThaiBev PCL and Kindest Place Groups Ltd. had been finalised, effectively making Mr Sirivadhanabhakdi the single largest shareholder in F&N. However, although Mr Sirivadhanabhakdi’s now 26.2 percent stake in F&N could have complicated matters for Heineken, by this time F&N’s board had spurned the Kindest Place Group bid and recommended that its shareholders accept Heineken’s sweetened offer of S$53 a share ($6.3bn), a matter which would be settled in a meeting scheduled for 28 September.

Although, if approved, the deal would give Heineken an 81.6 percent stake in APB, triggering an automatic takeover offer for the outstanding shares in the company, Mr Sirivadhanabhakdi had his mind on other matters. On the same day it was announced that ThaiBev’s partner TCC Assets had tabled an offer of S$8.88bn ($7.3bn) to buy all the F&N shares it did not already own. The offer for F&N became mandatory when ThaiBev and TCC Assets jointly crossed the 30 percent ownership level. However, rather than block Heineken’s bid for APB, and standing to gain S$1.16bn ($940m) should the deal take place (funds which could be used for its F&N bid), it was widely reported that ThaiBev was changing its stance on the matter.
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