Possible outcomes of F&N shareholder vote
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A look at the stock market yesterday and you would be forgiven for thinking that the deal between Heineken and Fraser & Neave (F&N) had already been signed and sealed.
F&N shares surged to a record high of S$8.55 within seconds of the market opening, but pared gains throughout the day to end at S$8.22, up seven cents from Wednesday, their last close.
Yesterday's exuberance followed F&N's announcement on Friday that it is accepting Heineken's offer to buy its stake in Asia Pacific Breweries (APB) for S$5.1 billion or S$50 a share.
Analysts say F&N will likely pay a special dividend to shareholders, given that it will be sitting on a handsome cash pile if the deal gets through.
Furthermore, F&N chairman Lee Hsien Yang said in a statement on Friday that the deal would allow the firm to unlock substantial value in the beer business and maximise returns to shareholders.
That is, if the deal goes through. To ensure it does, F&N will have to convince shareholders to back the sale.
That might not be easy, given that Thai Beverage (ThaiBev) - F&N's soon to be biggest shareholder once the deal with OCBC Bank and Great Eastern goes through - wants a stake in APB.
Opposition to the Heineken deal could also come from Japan's Kirin Holdings, which owns almost 15 per cent of F&N.
Aside from these two, F&N will also have to convince a fragmented group of shareholders, mostly fund management firms.
As the situation stands, there are several possible outcomes to the shareholder vote on Heineken's offer. Here are three:
#1: Both ThaiBev and Kirin vote against deal
Together, ThaiBev and Kirin hold a combined 39 per cent stake in F&N. For the deal to go through, it needs the approval of a simple majority - over 50 per cent - of shareholders present and voting at the meeting.
Technically, even if both major shareholders say no to the deal, F&N could still garner enough votes but it will have its work cut out.
It will mean having to sway a fragmented group of smaller investors, who may all have differing interests.
"The support of these two shareholders will be crucial for the deal," said DMG & Partners Research analyst Goh Han Peng.
If ThaiBev and Kirin vote against the sale, the smaller shareholders could throw their collective weight behind these two, in hopes of extracting a sweetener from Heineken.
"We think that if shareholders vote against the deal, Heineken could come back with a higher offer," said CIMB Research analyst Donald Chua.
#2: ThaiBev votes against deal, but Kirin votes for it
Nomura analyst Lim Jit Soon noted: "When ThaiBev bought into F&N, their intention was to gain exposure to APB, so why would they want F&N to sell its APB stake?"
DMG & Partners' Goh agreed, saying: "We believe ThaiBev has longer term strategic considerations in mind when initiating the purchase of F&N shares, and may well veto the sale of APB."
Last month, ThaiBev bought a 22 per cent stake in F&N from OCBC, Great Eastern and Lee Rubber Company. With recent purchases from the market, this has taken its holding in F&N to 24.1 per cent.
Meanwhile, Kindest Place Groups, a vehicle run by the son-in-law of ThaiBev founder Charoen Sirivadhanabhakdi, has agreed to buy an 8.6 per cent stake in APB from the three sellers.
Kirin has been cited as saying it is more interested in F&N's soft drinks business than its beer and alcohol one, and so it might readily support the Heineken offer.
"It dropped its biggest hint at a press conference last Friday, saying that its rationale for investing in F&N is not for APB but rather, for F&N's Malaysia unit. This, in our view, raises the chance of the APB deal going through," said CIMB's Chua.
If ThaiBev votes against the deal with 24.1 per cent and Kirin which holds nearly 15 per cent votes yes, it will require the net backing of an additional 10 per cent of the remaining shareholders to support the sale.
#3: ThaiBev votes for deal while Kirin votes against it
As implausible as it seems, ThaiBev might just be enticed by the special dividend payout that F&N is expected to distribute to shareholders after the deal.
This could help to ease the millions in paper losses that ThaiBev is now sitting on as a result of its purchase of the 22 per cent stake in F&N.
ThaiBev paid S$8.88 per F&N share, now worth S$8.22, and has taken on loans to do so.
Meanwhile, Kirin might surprise analysts by voting against the deal for strategic reasons.
As Nomura's Lim pointed out, the sale of the APB stake might not make good business sense for F&N in the long run.
"APB is a company that F&N built up over many years, and there is no reason to sell it. It's not as if F&N is going bankrupt and needs the money," he said.
"I believe it would be better for F&N to keep APB and benefit from its long-term growth, instead of taking this one-off cash offer."
Again, if only Kirin votes against the deal, but ThaiBev supports it, there is a good chance the deal could go through because of ThaiBev's larger stake.
