F&N ... Sep12

If Charoen is successful in gaining control of F&N, the question is whether he will also need to make a general offer at the subsidiary level. F&N holds a direct 56.43% stake in F&N Malaysia, the latter of which is the main contributor to the former’s non beer business.

If Charoen manages to acquire a majority stake in F&N, he will not be automatically have to make an offer for all the subsidiaries. While there is a downstream ruling under the Malaysian code of take-overs and Mergers, this case is not a clear cut.

It depends on several factors. The first is whether it is the intention of the new shareholder to take over the company in order to gain control of its subsidiaries. If the parent company is a shell company and that all the assets are in the subsidiaries, the aim is clear in that instance, the new shareholder has to make an offer to the minority shareholders of the subsidiaries.

In this instance, it can be argued that Charoen’s target is the beer business, rather than F&N’s Malaysia. In addition, F&N has other assets apart from Malaysian operations, including the aforementioned beer segment and property, the latter of which is its main earnings contributions. In this case, Charoen as a new shareholder could get a waiver from making an offer for F&N Malaysia.

It was reported that Charoen’s move could be to block the sale of F&N’s beer assets, which is held under Asia Pacific Breweries Ltd (APB).

Another possibility is that since F&N’s business seems to mirror Charoen’s own portfolio of beer assets and property, a break up of the Singapore company may not be necessary. However if Heineken managed to acquire APB, the breakup of F&N to unlock the value of its individual assets would prove inevitable.

The EGM for shareholders to decide on the sale of APB to Heineken is due to take place on Sept 28, 2012. It should also be noted that throughout this entire process, the one wildcard that remains is F&N’s other major shareholders. Japanese brewer Kirin Holdings.

Kirin, which holds a 14.7% stake in F&N has not made as stand on the matter since Charoen first emerged in July 2012. Given how tightly held F&N’s shares are, Kirin’s decision could be the deciding factor.

To recap, Charoen Sirivadhanabhakdi launched a $7.2 billion offer to buy out other shareholders of Fraser and Neave Ltd (F&N), potentially derailing Heineken NV's bid to take full control of F&N's prized beer business.

Charoen's bid for the Singapore conglomerate a fortnight before a key F&N shareholders vote has raised doubts on whether the sale of the group's 40 percent stake in Asia Pacific Breweries Ltd (APB) to Heineken is a done deal as predicted by industry watchers just a week ago.

TCC Assets Ltd, a firm controlled by Charoen, offered to pay S$8.88 for the F&N shares that the billionaire did not already own. But industry watchers say the Thais need to pay more if they are serious about gaining full control of F&N.

Since the offer restricts the Thais to buying F&N shares on the open market at prices not exceeding S$8.88, they will now need to raise their offer if they want to build their interest in F&N.

Charoen, Thailand's third-richest man, controls 30.36 percent of F&N, the bulk of it through Thai Beverage PCL. He needs a simple majority of votes at the meeting on September 28 2012 to overturn the deal that F&N's board and the Dutch brewer reached on August 18 2012.

That means Heineken needs to rally shareholders with a collective interest exceeding Charoen's stake to push through its $6.3 billion purchase of all the shares in APB, including F&N's stake in the maker of Tiger beer.

Under Singapore law, a bidder must make a mandatory offer for a company if its stake reaches 30 percent.

It would appear that TCC is likely to thwart the sale of APB to Heineken. One possible outcome is that if TCC is successful in gaining control of F&N, it would want to renegotiate the sale of APB to Heineken.

F&N's other large shareholders include Japan's Kirin Holdings Co Ltd <2503 .t=".t">, which owns nearly 15 percent. Kirin said previously it was interested in F&N's food and non-alcoholic drinks business.

The TCC offer, which is backed by loans from Singapore banks DBS Group Holdings Ltd and United Overseas Bank Ltd will not be formally presented to shareholders for another two to three weeks. Besides the two Singapore lenders, Morgan Stanley is also advising the Thais.

One risk of the scenario is that the sale (of APB) falls through and further strains the relationship with Heineken, with implications for marketing rights for Heineken by APB in Asia. Heineken beer accounts for about 30 percent of APB's sales by volume.

ThaiBev has not said how it will vote at the September 28 2012 meeting, and banking sources say TCC may be prepared to let go of APB and focus on F&N's remaining food-and-drinks and property businesses.

The Thais bought out Pepsi's bottling business in Thailand, and Charoen already has substantial investments in Singapore property.

F&N's property portfolio, worth more than S$8 billion ($6.51 billion), has also attracted the interest of Blackstone Group LP and other global property companies while the beverage business could appeal to potential suitors including Coca-Cola Co.

An acquirer may pay as much as S$7.7 billion for the Frasers Centrepoint Ltd property unit, 71 percent more than is reflected in F&N’s share price. That would be Southeast Asia’s largest real-estate deal.

Rent in Singapore has remained high as the population surged 18 percent in five years and the city attracts a million visitors a month.

F&N’s 332,261-square foot mall on Orchard Road, the city’s biggest tourist attraction, and over 7,000 furnished apartments from Europe to Australia may lure foreign buyers, including billionaire Li Ka-Shing’s Cheung Kong Holdings Ltd. With similar assets and S$5.1 billion of cash, Singapore’s CapitaLand Ltd is a natural buyer.

Breweries contributed 41.1 percent of F&N's total revenue of S$4.02 billion for the nine months to June 30 2012. Soft drinks and dairy products made up 29.2 percent, property was 21.3 percent and printing and publishing was 7.1 percent.

F&N is the leader in the soft drinks markets in Singapore and Malaysia, with a 24.5 percent and 26.9 percent market share, respectively. But F&N's reach in the rest of the region is weak and its Asia-Pacific market share is only 0.3 percent.

F&N's other soft drinks assets include distribution networks in emerging markets such as Vietnam and Myanmar.

F&N’s board recommended Heineken's offer partly because of the attractive valuation and limited options for the stake held by their joint venture in APB. Heineken had first right of refusal to the 65 percent of APB shares held by the joint venture between F&N and Heineken.