Case Studies : A Brewing Takeover Battle for F&n

A Brewing Takeover Battle for F&N

Case Overview

Thai Tycoon, Charoen Sirivadhanabhakdi, initially bought an 8.6% stake in Asia Paci c Breweries (APB) and a 22% stake in F&N from the open market. This prompted Heineken, the largest shareholder of APB, to start a bidding war for APB by making an offer for F&N’s entire 39.7% stake in APB. Charoen eventually gave in to Heineken in exchange for Heineken’s promise to not bid for F&N’s shares. F&N’s sale of its prized asset, APB, to Heineken eventually sparked off a huge battle between Charoen and Overseas Union Enterprise’s (OUE) for F&N’s soft drink and property assets. Ultimately, Charoen won the takeover battle with the withdrawal of his former bidding rival OUE, after he raised his offer from his earlier bid of S$8.88 per share. The objective of this case is to allow discussion of issues such as takeovers and the role of regulators, board composition and the role of the board in takeovers.

F&N: 130 Years Of Rich History

Fraser and Neave (“F&N”) was established by John Fraser and David Neave in 18831, and has since established itself as a household name to many, and as a leader in the food & beverages arena in Singapore and Malaysia. Beyond soft drinks, it also ventured into the brewing business with the Netherlands’ Heineken, jointly setting up Asia Paci c Brewery (APB) and the Tiger brand beer in 19312. It also diversi ed into property and publishing businesses.

This is the abridged version of a case prepared by Cui Chunhao, Lei Xianhong, Neo Sze Ying, and Yeo Hui Ying under the supervision of Professor Mak Yuen Teen and Dr Vincent Chen Yu-Shen. The case was developed from published sources solely for class discussion and is not intended to serve as illustrations of effective or ineffective management or governance. The interpretations and perspectives in this case are not necessarily those of the organisations named in the case, or any of their directors or employees. This abridged version was edited by Amanda Aw Yong under the supervision of Professor Mak Yuen Teen.

Copyright © 2014 Mak Yuen Teen and CPA Australia.

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F&N is currently listed on the Singapore stock exchange3; as of 2012, F&N boasted a market capitalisation and total assets of over S$13 billion and S$14 billion respectively. According to the company, it has all along operated on the basis that good corporate governance is crucial to the continuous maximisation of long- term shareholder value4, and the company has been showing consistently strong nancials. F&N’s revenues in 2012 stood at S$5.57 billion, with a pro t of S$952 million5.

Composition Of The Board

Sitting on the F&N Board were two directors who were linked to companies that were substantial shareholders of F&N. Koh Beng Seng who was a non-executive independent director at F&N was also a director at Great Eastern Holdings, which was a former substantial shareholder of F&N that sold its shareholdings to Charoen on 18 July 20126. Mr Hirotake Kobayashi was a nominee director of F&N, and simultaneously held the position of Managing Director of Kirin Holdings, which was another substantial shareholder of F&N7. Among the independent directors, Ho Tian Yee had been independent director for 14 years and 10 months (as at December 2012), while Nicky Tan Ng Kuang had been independent director for 8 years and 11 months (as at September 2012)8.

Crouching Tiger, Hidden Charoen

Charoen Sirivadhanabhakdi, a Thai billionaire9, was eyeing the potential synergies stemming from the brewing, beverage and property businesses10. In June 2012, he met OCBC’s Chairman Cheong Choong Kong, CEO Samuel Tsien, and Fang Ai Lian, Chairman of the bank’s insurance unit Great Eastern Holdings, to convince them to sell F&N’s shares11. Negotiations took almost a month and nally, on 18 July, OCBC, Great Eastern Holdings (“GEH”) and Lee Rubber (all controlled by the Lee family) agreed to sell their combined 22% stake in F&N for S$8.88 per share to Thai Beverage (“ThaiBev”)12. ThaiBev is a company controlled by TCC Assets Limited (“TCC”), which is in turn owned by Charoen13. Part of this package deal is the agreement that the three companies will also sell their combined 8.6%14 stake in APB at S$45 per share to Kindest Place Groups Limited (“KPGL”), a company belonging to Chotipat, who is Charoen’s son-in-law15. The announcement, however, startled Heineken and forced its hand in starting a takeover bid for APB—F&N’s most prized asset.

A Brewing Takeover Battle for F&N

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Tiger, Tiger, Burning Bright

APB was established as a joint venture between Heineken and F&N, and with Tiger Beer as its agship product16. First produced in 1932, Tiger Beer has won over 40 international awards and accolades, and a strong brand recognition has led to its continued popularity in both Asia Paci c and globally17.

Afraid that Charoen (who was then the new major shareholder) may end up forcing F&N to pursue a different strategy for APB, Heineken offered a buyout of the total direct and indirect 40% stake that F&N owned in APB at S$50 per share on 20 July18. If F&N’s shareholders were to agree to this deal, Heineken’s stake in APB would increase to 81.6%, allowing it to gain full control of APB19.

Charoen launched a counter-offer on 7 August (via KPGL) to purchase F&N’s direct 7.4% stake in APB at S$55 per share - a 10% premium over Heineken’s offer price20. If successful, this effectively increases Charoen’s stake in the beer maker to 15.9%. The F&N board, which had earlier accepted Heineken’s offer (subject to shareholders’ approval), announced that it will now evaluate Charoen’s higher offer.

Heineken retaliated on 18 August, making a nal offer of S$53 per share for F&N’s stake in APB21. However, this offer was still lower than KPGL’s offer of S$55 per share. Heineken then claimed that this was because “[t]he unsolicited offer is not comparable to the Heineken Offer”, since Heineken was offering S$5.59 billion for a 39.7% stake in APB whereas KPGL was offering only S$1 billion for a 7.3% share of APB22.

In an apparent reversal of his original intentions, Charoen announced on 19 September that he would support Heineken’s offer for APB’s stake in exchange for Heineken’s promise to not bid for F&N23. Hence, the APB battle ended on 28 September when F&N shareholders passed a resolution to divest the company’s