Heineken's Conundrum

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Anyone who has been to Asia will tell you about the ubiquity of Tiger beer all across the continent.  Though Singapore-based, you can find Tiger pretty much anywhere from Beijing to Bangkok.  Their parent company, Asia Pacific Breweries (APB), has 35 breweries across 12 Asian nations.  Needless to say, they have a pretty large footprint.  Heineken (NASDAQOTH: HEINY) knows this, and their bid for control of APB will get them a piece of the very resilient Asian beer market.  Compared with the sickly growth prospects across North America and Europe (five year compound average growth rate of -0.6% and -0.5%, respectively, according to Canadean), Asia boasts an increase of 3.8%.  The only problem with Heineken's bid is there is another suitor, in the form of Kindest Place, a company linked to Thai billionaire Charoen Sirivadhanabhakdi; let's just call him Mr. S.  

On August 3rd, Fraser and Neave (the Singapore based company that owns 39.7% of APB; should they sell, Heineken will own a total of 81.56% of APB) recommended selling their APB stake (direct and indirect) to Heineken for S$50 a share (about $40).  Kindest Place, controlled by Mr. S' son-in-law, upped the stakes on August 6th by offering S$55 a share for the 7.3% of APB owned directly by Fraser and Neave (as opposed to the shares they own in joint venture with Heineken).  This comes only a month after Mr. S agreed to buy 7.9% of APB for S$45.   

All the owners and complementary interests in this deal did a lovely job of setting my brain in knots, so I'll try to break this down:

 

Ownership Structure of APB:

Asia Pacific Investment Partners (the 50/50 Joint Venture between Fraser and Neave and Heineken): 64.8%

Heineken: 9.5%

Fraser and Neave: 7.3%

Other: 18.4%

Ownership Structure of Fraser and Neave:

Thai Beverage PCL (Controlled by Mr. S): 24.1%

Kirin Holdings: 15%

Other: 39.1%

 

Maybe I'm a little dense, but this helped me get a better idea of what Mr. S' offer does to the Heineken deal.  He already controls 24.1% of Fraser and Neave, and his interests there can put a severe kink in whether or not the sale to Heineken goes through.  His offer of S$55 per share for that 7.3% of APB Fraser and Neave directly owns gives him over 15% of APB, compared with Heineken's 9.5%.  If his S$55 bid is successful, Heineken will have to overcome a significant roadblock.  Though it seems silly for shareholders to vote down the sale to a large multinational that could grow the company well, the extra S$5 could prove just enough.  A Reuters interview solidified this, "With this latest turn of events, Heineken's current offer will fail. It will have to offer more than S$55 per share to outbid the Thai group, possibly S$60 per share," said Goh Han Peng, analyst at DMG & Partners Securities in Singapore."  

As pointed out by Reuters, "Heineken's APB bid is already at a rich multiple of 17.4 times (EBITDA) core profits, above the 15.4 times paid by Anheuser Busch InBev (NYSE: BUD) for Mexico's Modelo in June."  So, the question is, will they raise their already good offer, or will their clout as a company win out? 


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