Thai Beverage increases stake in Fraser & Neave to 29% but stops short of full bid, positioning itself for bigger windfall if Heineken succeeds in its offer for F&N's stake in Asia Pacific Breweries

Nevin Barich

SINGAPORE , August 29, 2012 (Thomson Reuters) – Thai Beverage has raised its stake in Fraser and Neave (F&N) but stopped short of a full bid, positioning itself for a bigger windfall if Heineken succeeds in its offer for the Singapore conglomerate's Asian brewing crown jewel.

ThaiBev, controlled by billionaire Charoen Sirivadhanabhakdi, said on Tuesday it had bought a 2.6 percent stake in F&N for S$316 million ($252 million) to bring its interest to 29 percent. If its holding hits 30 percent, ThaiBev would be obliged to bid for all of the company.

The stake increase is the latest move in a six-week battle pitting ThaiBev against Heineken. The Dutch brewer, the world's third-largest, was jolted into action when Charoen became the largest shareholder in F&N, with which Heineken has a joint venture controlling Tiger beer maker Asia Pacific Breweries .

"If Thai Beverage crosses the 30 percent mark and makes a general offer, then they can block Heineken's bid for APB. But whether or not they have the intention or the money to buy F&N, that's anybody's guess," said Ng Kian Teck, lead analyst at SIAS Research.

Some analysts believed Heineken was bound for success and ThaiBev was most likely seeking to maximise its gains from the Dutch brewer's bid.

"I think Heineken is 98 percent of the way there," said Ian Shackleton, beverage analyst at Nomura Securities. "The 2 percent is the possibility of ThaiBev finding a partner to buy all of F&N."

ThaiBev alone would likely struggle to buy the whole of F&N. The cost would be some S$8 billion, which is the size of ThaiBev's own stock market value.

Moody's Investors Service said this month that ThaiBev's Baa2 rating remained under review for downgrade.

"ThaiBev doesn't have the desire to buy the whole of F&N. If they want to block Heineken's bid for Asia Pacific Breweries, they need to win over Kirin and some other institutional shareholders to get the 51 percent majority," a banking source said.

ThaiBev declined to comment on its plan.

Heineken said it was not surprised ThaiBev had increased its stake in F&N, but declined further comment.

PROBABLY EXPECTED

Heineken is seeking to convince F&N shareholders to accept its S$7.94 billion offer to buy the Singapore beverages-to-property group out of the joint venture and take F&N's 7.3 percent direct stake and APB shares held by others.

Those F&N shareholders include Japan's Kirin Holdings , which owns just under 15 percent of the conglomerate.

"ThaiBev's move is probably expected. They would want as much control as possible, but we doubt they will want to do a general offer," said Christopher Wong, an investment manager at Aberdeen Asset Management Asia, which owns F&N shares.

A debt financier said ThaiBev would need financing of between $10 billion and $11 billion in total to buy out F&N, which has a market value of $9.4 billion.

ThaiBev has already spent S$3.6 billion to acquire 29 percent of F&N and partly funded the purchase through a S$2.8 billion loan facility.

"Thai banks will clearly be key to the overall financing as ThaiBev will consider every conceivable pocket of liquidity," said the debt financier, who declined to be identified because of the sensitivity of the matter.

The F&N board has proposed a S$4 billion payout to shareholders through a capital reduction, if they approve the sale of APB to Heineken. Some analysts said that payout could sway minority shareholders in favour of the deal.

Karel Zoete of Rabobank said the alternatives for F&N were "pretty grim". Heinken could seek other partners, pulling the Heineken brand which makes up about a third of APB volumes. F&N and APB shares would also likely tumble if the Heineken bid was rejected, leading to a paper loss for ThaiBev.

A shareholder meeting is expected in October to vote on the APB sale, a source familiar with the plans told Reuters.

One analyst said ThaiBev may be looking at F&N even without its brewery business.

"They see F&N as strategic to their growth ambitions, not just purely on the brewery side but also the soft drinks, which have a strong ASEAN presence, dairies and property," said Goh Han Peng, an analyst at DMG & Partners Securities in Singapore.

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