Heineken will boost its Asian growth with control of the group that brews Tiger beer after Singapore's Fraser and Neave (F&N) agreed to sell its stake in the firm for $4.1-billion (U.S.).
The purchase gives Heineken 82 per cent of the prized Asia Pacific Breweries (APB) and it will now launch an offer for the rest of the company, while F&N, a drinks and property group, could be broken up eventually.
Amsterdam-based Heineken already owned 42 per cent of APB, which runs 24 Asian breweries. Buying F&N's 40-per-cent stake will help it to defend its turf in Asia, which is under threat from Thailand's second-richest man.
Heineken began brewing Tiger with F&N in the 1930s but that partnership hit the rocks after Thai Beverage and others linked to Thai billionaire Charoen Sirivadhanabhakdi bought stakes in F&N and APB for $3-billion last month.
The investment by Charoen, who is seeking to expand his own Chang beer business in Asia, pushed Heineken into an offer for APB as it saw its position in Asia coming under threat. Japanese brewer Kirin is also a big F&N shareholder.
F&N's board, whose chairman Lee Hsien Yang is the younger son of Singapore's elder statesman Lee Kuan Yew, will recommend the $40 per APB share cash deal to its shareholders, Heineken said in a statement on Friday.
This was at the same level of Heineken's original bid two week ago, which surprised analysts who had expected a higher bid would be needed to win control. The Dutch company will now mop up minority shareholders at a similar price to make the total purchase worth about $6-billion.
Control of APB is vital for Heineken, the world's third-largest brewer, as this will raise the proportion of its total profits from the fast-growing Asian market to 15 per cent from 6 per cent, while boosting the growth rate of the whole group.
By winning APB, Heineken gets ownership of Tiger, Bintang, Anchor and other brands of beer plus two dozen breweries in 14 countries including Singapore, Malaysia, Indonesia, Vietnam, Thailand and Cambodia. However, the biggest brand APB brews is Heineken itself, which accounts for 30 per cent of its volumes.
Heineken shares closed up 3.4 per cent.
"Not cheap by any stretch of the imagination, but strategically a 'must do' deal which secures Heineken's future in Asia," said analyst Dirk Van Vlaanderen at brokers Jefferies.
He calculated the deal at a multiple of 17.4 times EBITDA core profits, above the 15.4 times paid by Anheuser Busch InBev for Mexico's Modelo in June, but being pushed out of APB would have left Heineken with no long-term strategy in Asia.
"We thought the deal price would most likely go above the initial [$40] offer given the interest in F&N by both Kirin and Thai Bev so to get the F&N board to agree on [$40] should be well-received by the market," he added.
APB is seen as a very attractive business with near 20-per-cent annual earning growth over the past decade, with leading positions in key markets such as Vietnam which helps offset sluggish sales in Europe which account for half its sales.
The Dutch group had given F&N a Friday deadline to agree a sale after a two-week offer period, and both F&N and ABP shares were suspended on Thursday and Friday as a deal appeared close.
The Heineken deal could prompt a breakup of F&N with Coca-Cola keeping an eye on its popular soft drink 100PLUS, fruit juices, mineral water and dairy products unit which could be hived off from the Singapore group's property assets.
That could pit Coca-Cola against two sizeable Asian brewers, Thai Beverage and Kirin, which have their own interests to protect as F&N's two biggest shareholders with stakes of 24.1 per cent and 15 per cent respectively.
Earlier, Kirin President Senji Miyake said his group was focused on F&N's soft drinks and was not thinking about doing anything with APB.
"We are carefully considering what action is best, so we don't have to alter our (southeast Asia) strategic growth plans," he said at a briefing for half -year earnings.
F&N shares have jumped 31.5 per cent this year; APB shares have surged 71.9 per cent since the start of the year, and the offer price was at a 45-per-cent premium to month-ago levels.