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APB bid: ThaiBev stands to benefit

Publication Date : 09-08-2012

 

The stealthy move by Thai Beverage's founder to challenge Heineken just as the giant Dutch brewer thought it had the deal in the bag is an impressive one.

Tension over the tussle for Asia Pacific Breweries (APB) rose several notches after Tuesday's news that Kindest Place, controlled by Charoen Sirivadhanabhakdi's son-in-law, wanted to buy 7.3 per cent of APB.

But putting aside the dramatic effect of the unexpected bid, the question is: How does it advance Mr Charoen's game plan?

Kindest Place already has 8.6 per cent of APB, the stake it bought from OCBC Bank and Great Eastern. Assuming it gets the extra 7.3 per cent, it will end up with nearly 16 per cent of APB.

Now, assume that Fraser & Neave (F&N) sells its 50 per cent stake in the joint venture vehicle Asia Pacific Investment to Heineken; this, however, comes with the important proviso that Heineken is happy with that stake alone - and that's a big "if".

In that case, Heineken would still be the largest shareholder and Kindest would be a distant second in terms of control. An extra S$1 billion to achieve not much benefit, it seems.

So what's in it for Kindest?

On the face of it, this offer simply gives Kindest the power to spoil the party.

Heineken is unlikely to accept an outcome where Kindest becomes a third party. It would much rather have a clean sale.

With Heineken unlikely to want this interloper, it will have no choice but to raise the price in order to buy all of F&N's direct and indirect interests in APB.

This seems to have forced Heineken back into discussions with F&N, with the increased chance that it may offer a higher price for the APB shares.

For F&N's part, it is unlikely to want to sell only this small stake to Kindest Place.

After all, what would it do with the rest of its stake in Asia Pacific Investment?

Therefore, knowing that F&N shareholders may complain if it turns down the higher offer, the board will have little choice but to go back to Heineken to ask for a better price for the shares.

At this point, with Kindest having bought its 8.6 per cent in APB at $45 a share, if Heineken raised its bid to S$55, this would give it a S$10 paper profit on the purchase. That's one tangible benefit.

But there may also be advantages for Thai Beverage.

After all, Thai Beverage is taking out loans to finance its purchase of F&N shares. It has bought about $2.3 billion worth of F&N shares from OCBC and Great Eastern.

If the value of APB has risen - since Kindest has offered S$55 per share - this makes F&N more valuable and so makes Thai Beverage's investment in F&N more valuable too. All this makes it easier to raise cash as well.

This means that by making such an offer, Kindest and Thai Beverage stand to enjoy these benefits and yet face only a very small risk that F&N will take it up.

Kindest has, in effect, raised the stakes for both the Heineken and F&N boards, with very little cost to itself, at this point. It is probably going to be able to achieve a higher price for its stake without having to shell out a cent.

 

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