Davy Research |
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Heineken
(HEIA NA)
Makes offer to acquire Fraser & Neave's interests in APB
20 July 2012
Richard O'Donovan
| Closing Price: | 4302c | Rating: | Underperform | 08/06/10 | Previous: | Neutral | 14/08/09 |
FACTS: Heineken has announced (July 20th) that it has made an offer to the board of its joint venture partner, Fraser & Neave (F&N), to acquire F&N’s direct and indirect interests in Asia Pacific Breweries Limited (APB) at a price of S$50.00 per APB share, for a total consideration of S$5.1bn (c.€3.3bn). In addition, Heineken has offered S$163m for F&N’s interest in the non-APB assets held by Asia Pacific Investment Private Limited (APIPL), a 50/50 joint venture between Heineken and F&N. In accordance with the Singapore Code on Takeovers and Mergers, when the conditions of the offer are satisfied, Heineken will make a mandatory general offer for all the shares of APB not already owned by Heineken at a price of S$50.00 per APB share, for a maximum consideration of S$2.4bn. Heineken's offer price, represents a premium of 45% over the one-month volume-weighted average price per APB share.
ANALYSIS: Heineken's offer is in line with the company's strategy of expanding into emerging markets, following the purchase of FEMSA (Brazil and Mexico), the partnership with UBL (India) and investments and acquisitions in Africa in recent years. 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. Heineken will have direct access to a number of important markets, including Cambodia, China, Indonesia, Malaysia, New Zealand, Papua New Guinea, Singapore, Thailand and Vietnam.
When completed, the offer will also strengthen Heineken’s portfolio, giving it control of the strong international Tiger brand as well as strong regional and local brands like Anchor, Bintang and Larue.
In addition, Heineken will be able to consolidate APB in its accounts, providing better visibility to its Asian operations, which we believe are currently underappreciated given the use of the equity accounting method for reporting purposes.
F&N is Heineken’s long-term partner in Asia. It holds a 50% stake in APIPL (which in turn owns a 64.8% stake in APB) and a 7.3% stake in APB. Heineken holds the remaining 50% stake in APIPL and a 9.5% stake in APB.
The offer has been triggered by the transaction in the last couple of days which has seen local player ThaiBev acquire a 22% stake in F&N, as well as an associated company of ThaiBev acquiring an 8.4% stake in APB. Heineken has therefore reacted in order to protect its local interests.
DAVY VIEW: Given its strong cash generation, Heineken has been de-leveraging quickly in recent times and prior to this announcement, on our numbers, would have had a net debt/EBITDA ratio of c.1.8x by the end of 2012. Assuming that a full takeover of APB occurs, Heineken's net debt/EBITDA ratio would rise to c.2.7-2.8x by the end of 2012. This could delay a potential offer for other emerging market assets such as Petropolis in Brazil. APB reported an EBITDA of c.S$683m in 2011, implying a c.19x trailing EBITDA multiple for the remainder of the business. While this is certainly at the expensive end of recent brewing acquisitions, APB is a high-growth company and is of significant strategic importance for Heineken (c.30% of APB volumes are of the Heineken brand).