Suds and stocks and supercats

Icons in the industry have been falling like flies. Budweiser, that epitome of Americanness, is now owned by a Belgian/Brazilian consortium. The fight for dominance has come to Thailand with the recently erupted battle over control of Tiger beer.
Here’s the background. In 1883, two Britons living in Singapore decided to diversify from their printing business and form a company to aerate water. They eventually named the company after themselves: Fraser and Neave (F&N). In 1931, they decided to venture into brewing, and formed a joint venture with the Dutch company Heineken. That JV was called Malayan Breweries (later the name was changed to Asia Pacific Breweries or APB) and produced the first beer to be brewed in Singapore. That beer was called Tiger.
Closer to home, a state-run distillery was founded west of Bangkok more than 200 years ago in the early days of the Chakri dynasty. In 1941, that distillery started producing a high-quality spirit aimed at combating imports. Although called a whisky, that spirit, named Mekhong, is actually a rum, as it is made from molasses.
Another Thai rum, SangSom, was launched in 1977 and became the top-selling Thai spirit. SangSom and Mekhong are called brown spirits, while white spirits are made in the same way but without any colouring added.
In 1995, the beer brand Chang was introduced, eventually becoming market leader in Thailand. A seesaw battle occurred, with Singha now having the upper hand.
In 2003, all these white, brown, beer and other spirit businesses were brought together under the roof of one company, Thai Beverage, which listed on the Singapore Exchange in 2006.
Importantly, ThaiBev also sells non-alcoholic beverages such as green tea, water, sports and isotonic beverages, energy drinks and ready-to-drink coffee.
ThaiBev recently started investing in Fraser and Neave, and now controls the largest share of the company.
So, to summarise, ThaiBev (maker of Chang) owns the dominant share of Fraser and Neave. F&N is in a JV with Heineken called APB, which brews Tiger. Heineken is close to buying APB. Everyone is asking whether ThaiBev will use its control of F&N to stop this, and whether ThaiBev wants to own Tiger itself.
To answer this question, we must consider the Chinese proverb “Riding the tiger, it is difficult to get off,”
The management of ThaiBev, being Chinese in origin, are well aware of this. The company has not been as successful as they would have liked with Chang beer, and they are finding that running a beer business is a lot more competitive than running a white-spirits business.
One can ask: Does ThaiBev have the wherewithal in terms of people, skill sets and expertise to manage Tiger across its multiple geographies?
Or does ThaiBev want something else?
Heineken, on the other hand, is a beer company, pure and simple.
ThaiBev is a beverage company, and its most recent acquisition was of Serm Suk, a distribution company.
So we need to ask the question: What other beverage businesses does F&N own besides Tiger beer?
F&N owns 100 Plus, Ice Mountain Water, and Seasons Ice Tea, as well as fruit juices and dairy and soft drinks.
So, now we might be able to see what ThaiBev meant when it recently said it had a “paramount intention to work constructively with all stakeholders of Fraser and Neave to create value”.
Wouldn’t it make sense for ThaiBev to force Heineken to pay top dollar to acquire Tiger, those funds flowing into the bank account of F&N, which would then be distributed as a dividend to, among others, ThaiBev? (ThaiBev should get around US$1 billion, or Bt31 billion.) ThaiBev, as controlling owner of F&N, could then buy the rest of the company and merge all the beverage brands into one company. (This analysis doesn’t even begin to discuss the synergies in combing the real-estate businesses of the two companies.)
Bottom line, this is not a fight for Tiger. Heineken will get Tiger. This is a play for the other assets of F&N.
ThaiBev is run by some very smart people, who have developed an excellent long-term strategy. The key to success of any company is creating a strategy and then executing it very well.
We are seeing that theory put into action in front of our eyes.

Eric Rosenkranz ([email protected]) runs a strategic advisory in Southeast Asia assisting existing companies as well as start-ups to develop their long-term strategy and achieve success in their business.