F&N's Heineken dilemma raises shareholder's hackles

Japanese drinks giant Kirin explores its options on its 15% stake in F&N.

F&N shares closed at SGD8.35 on 25 July (the highest close since 2006), even as its board seeks advice on Heineken’s offer to buy out its stake in Asia Pacific Breweries. Meanwhile, Kirin, which holds a 15% stake in F&N, has engaged an investment bank to evaluate its options in light of the recent corporate action at F&N.

Here's more from Nomura:

We see three possible scenarios for Kirin:

1) Do nothing: Kirin could wait and see if Heineken’s offer will be put for a vote. If the shareholders of F&N vote in favour of selling the APB stake to Heineken, we think Kirin could work with Thai Bev to grow the remaining non-beer businesses within F&N and perhaps unlock value by divesting the property business. We believe a similar argument applies if shareholders decide to keep the APB shares within the group.

2) Sell its stake in F&N: As Kirin’s entry price for its 15% stake in F&N is SGD6.50 (acquired in July 2010), it would likely record a nice gain if it were to decide to sell out, preferably closer to SGD8.88, which is Thai Bev’s cost when it acquired the 22% stake in F&N from the OCBC group.

3) Making a general offer: Kirin could choose to launch a voluntary conditional general offer for F&N at say SGD9.00 (slightly above Thai Bev’s price paid for F&N of SGD8.88) and take control of the F&N group with the view of owning the F&B assets for the longer term. Based on SGD9 per share, the market cap of F&N would be SGD12.8bn, which would be costly, in our view. However, Kirin could also look to divest the property business which is worth about SGD6bn based on our estimates to reduce its outlay for F&N. Assuming Kirin is prepared to sell F&N’s APB stake, Heineken’s SGD50 per share offer for APB provides a back stop valuation at SGD5.2bn for the APB stake, based on our estimates.