The battle for the breweries: ThaiBev vs Heineken
Heineken's and Thai Beverage's bids for direct and indirect stakes in Asia Pacific Breweries deserve attention. There are plenty of explanations for why the Thai company wants to get a stake in the Singaporean brewer and why the Dutch giant has to flex its muscles. There are also reasonswhy Japan's second-biggest brewer Kirin, with a 15-per-cent holding in Fraser and Neave - a major shareholder of APB - can't stand still.
APB was established as Malayan Breweries in 1931 as a joint venture of Singapore's Fraser and Neave Group of Companies and Heineken. Malayan Breweries was renamed Asia Pacific Breweries in 1990 to be in line with its regionalisation policy.
After the first brewery in Singapore, now it has 30 breweries in 13 countries - Singapore, Cambodia, China, Indonesia, Laos, Malaysia, Mongolia, New Zealand, Papua New Guinea, Solomon Islands, Sri Lanka, Thailand and Vietnam - and the French Pacific possession New Caledonia.
From these breweries, APB produces more than 40 beer brands and brand variants including Tiger, Heineken, Anchor, Baron's Strong Brew, ABC Extra Stout, Archipelago and Bintang.
Some are for global sale.
In the first six months of its 2012 fiscal year ended March, APB reported a profit before interest, tax and exceptional items (PBIT) of 443.1 million Singapore dollars (Bt11.19 billion), an increase of S$102.2 million or 30 per cent on year. Overall, the group's revenue rose 16 per cent to S$1.77 billion.
Notably, Thailand and Indochina, grouping Vietnam, Cambodia and Laos, continued to be APB's largest PBIT contributor at 44.6 per cent in the second half.
Versus the first six months of last year, PBIT for the region rose 18 per cent on the back of 12-per-cent volume growth and improved margins due to price increases in Vietnam and a favourable sales mix in Cambodia.
THAIBEV STILL SMALL
Though ThaiBev is Thailand's largest beer brewer and one of the largest beverage producers in Asia, its sales were a tiny fraction of APB's - Bt132.19 billion in 2011 - despite this being a 9.7-per-cent increase from Bt120.47 billion in the previous year.
Notably, only 25 per cent of its revenue came from beer, while the rest was generated by other businesses - spirits (64 per cent), non-alcoholic beverages (8 per cent) and food (3 per cent).
It all makes sense for ThaiBev, controlled by Thai billionaire Charoen Sirivadhanabhakdi's TCC Group, to pay S$2.78 billion (US$2.2 billion) for the 22-per-cent interest in F&N held by Oversea-Chinese Banking Corp and its partners.
Charoen's son-in-law will spend S$920.2 million buying stakes in APB from OCBC and its insurance unit Great Eastern Holdings. While the stake in F&N will boost ThaiBev's food and non-alcoholic beverage business, the direct and indirect stake in APB will strengthen its foothold in the regional beer market.
That entry is threatening Heineken. Heineken directly owns 9.5 per cent of APB, while F&N owns 7.3 per cent directly. Through their 50:50 joint venture Asia Pacific Investment, the two companies indirectly own a combined 64.8 per cent of APB.
In Thailand, ThaiBev - the brewer of Chang beer - has set its sights on being a direct competitor to premium brand Heineken with the launch of German brand Federbrau. Beyond that, Heineken sees the need for full control of APB, given falling sales in Europe and increasing sales in Asia and the Pacific.
Of all brands sold by APB, Heineken accounts for 30 per cent by volume. In Asia, Heineken just started brewing in India last year through a joint venture, United Breweries. In other markets, it distributes products under export and licensing. APB has been the key marketing tool of Heineken in this region.
Of all five main regions of business, Asia-Pacific is now a key market of Heineken. In terms of group volume sales, last year the region showed 6.2-per-cent growth from the previous year to 26.5 million hectolitres (one hectolitre equals 100 litres), against 0.2 per cent in its old domain, Western Europe, which last year consumed 45.7mhl. Group sales in Africa and the Middle East grew 6.2 per cent to 28.8mhl and the Americas only 1 per cent to 60.2mhl.
Yet for the premium segment that produces bigger margins, Asia-Pacific showed the highest growth at 15 per cent, compared with 3.5 per cent in Western Europe, 1.6 per cent in Central/Eastern Europe, 13 per cent in Africa/Middle East and 0.8 per cent in the Americas.
HEINEKEN, THE SURPRISE BIDDER
When it launched a US$4.1-billion bid for F&N's direct and indirect stakes in APB as well as a $2.4-billion tender offer, Heineken surprised the market with its generosity.
In a statement, Heineken chief executive officer Jean-Francois van Boxmeer said it was the time for Heineken "to look ahead to the next chapter of our Asian business ... If agreed, the offer will strengthen Heineken's platform for growth in some of the world's most exciting and dynamic economies with fast-growing populations."
Through this offer, Heineken expects direct access to important markets, including Cambodia, China, Indonesia, Malaysia, New Zealand, Papua New Guinea, Singapore, Thailand and Vietnam - which is now reached by APB's network. According to a Rabobank note, Heineken's bid of S$50 per share was at 17.5 times 2012 earnings before interest, tax, depreciation and amortisation, "which is expensive".
"Why would Heineken let [Asia Pacific Breweries] go to a competitor who they see as competition in Asia?" Kevin Scully, executive chairman of NRA Capital, an independent equity-research firm in Singapore, told The Wall Street Journal.
All eyes are now on Kirin Holdings. WSJ quoted people familiar with the matter as saying Kirin is now in talks with bankers for a potential counter-bid for APB.
Kirin holds 15 per cent, bought from Temasek in 2010 for S$970 million. It now has one seat on F&N's board and could vote against Heineken's attempt to gain control of APB. Last year, it bought Schincariol, Brazil's second-biggest brewer by market share, for US$3.9 billion.
Should Kirin decide to join the race, it will need to make a better offer than Heineken's. According to Reuters, the Japanese firm tapped Deutsche Bank for help while F&N has hired Goldman Sachs to weigh Heineken's bid for APB.
The Dutch brewer's bid for APB will expire on Friday. This ensures a fierce battle among the three bidders, which are all vying to control the world's most staggering beer market.