F&N Seen Breaking Up in Singapore After Heineken Sale

From its origins as a fizzy water seller, F&N brewed beer in 1931, entered property development in 1990 and started publishing and printing in 2000, according to its website. Photographer: Munshi Ahmed/Bloomberg

Aug. 6 (Bloomberg) -- Fraser and Neave Ltd.’s agreement to
sell its stake in the Tiger beer business to Heineken NV may
spark a breakup of the Singapore conglomerate as bidders pick
over its property and soft drinks divisions.

F&N’s board of directors will recommend Heineken’s S$50 a
share offer for Asia Pacific Breweries Ltd. to its shareholders,
the company said Aug. 3. Acquiring F&N’s 40 percent stake in
Singapore-listed APB will give the Dutch brewer control of its
main distributor in Asia.

It also leaves F&N’s biggest shareholders, brewers Thai
Beverage Pcl and Kirin Holdings Co., marooned in a business
dominated by shopping malls, serviced apartments and industrial
buildings that might appeal to developer CapitaLand Ltd., said
Religare Capital Markets Ltd. Kirin says it is interested in F&N
for its food and beverage business, while Coca-Cola Co., the
world’s largest soft-drinks maker, is exploring a bid for F&N’s
beverage unit, people with knowledge of the matter said.

“F&N might be more open to part with the remaining
beverage business,” now that it has accepted Heineken’s offer,
Goh Han Peng, a Singapore-based analyst at DMG & Partners
Securities, said by telephone. “In a sense, they will achieve a
break-up.”

From its origins as a fizzy water seller, F&N brewed beer
in 1931, entered property development in 1990 and started
publishing and printing in 2000, according to its website.

F&N gained 0.9 percent to S$8.22 a share in Singapore,
after rising as much 4.9 percent to reach a record high earlier.
Asia Pacific Breweries dropped 1.3 percent to S$48.85, while
ThaiBev was down 1.5 percent.

‘Significant’ Gain

Asia Pacific Breweries, majority owned by a joint venture
between Heineken and F&N, brews Heineken and Tiger in markets
from Indonesia to China. APB was a key draw to investors in F&N,
and without it, Kirin and Bangkok-based ThaiBev may struggle to
justify owning stakes in the remainder of F&N, according to
Olivier Nicolai, a London-based analyst at UBS AG.

The two companies stand to gain financially from the sale
of APB, according to estimates from Deutsche Bank analyst
Gregory Lui. Lui expects a sale of APB at S$50 a share to
provide F&N and its shareholders “significant” one-time gains
and special dividends of about S$2.71 a share, according to a
research note published July 23.

With almost 213 million shares, or 15 percent of F&N,
Kirin’s gain from APB’s sale would be worth about S$577 million
($465 million), according to data compiled by Bloomberg. ThaiBev
agreed on July 18 to buy 22 percent of F&N and now has a 24.1
percent stake, according to Bloomberg data.

CapitaLand

In the year to September 2011, property accounted for more
than 66 percent of F&N’s profit, data compiled by Bloomberg
show. Frasers Centrepoint, an F&N subsidiary, oversees nine
malls in Singapore, while the company has development projects
in the U.K., Australia, New Zealand, Thailand, Vietnam and
China, according to the Frasers Centrepoint website.

“The elephant in the room is what happens to the property
assets,” said Jonathan Foster, Singapore-based director of
Global Special Situations at Religare. Selling them to
CapitaLand, Southeast Asia’s biggest property company, would
create a Singapore developer with the scale to compete with
global peers, he said.

“With a strong balance sheet including a strong cash
position of S$5.1 billion, CapitaLand is always open to
exploring opportunities in markets where we have a presence,”
the company’s corporate communications department wrote in an e-mail Aug. 4.

The real-estate business has an equity value of S$7.4
billion, Jit Soon Lim, an analyst at Nomura Holdings Inc., wrote
in a note to clients last month. F&N owns land that could
support 2,000 residential units in Singapore, while its
Centrepoint Shopping Mall in the city has scope to be
redeveloped, said Goh, the DMG & Partners analyst.

Drinks

“Foreign developers might be interested in some of F&N’s
real estate assets,” said Goh, Singapore-based analyst at DMG &
Partners Securities. “Most of the shopping malls have been spun
off into real estate investment trusts.”

F&N’s dairy and soft-drinks business, maker of sports drink
100Plus and Farmhouse-branded milk, may be worth as much as $3
billion, people familiar with Coca-Cola’s interest in the units
have said. The business is held under F&N Foods Pte. and Kuala
Lumpur-listed Fraser & Neave Holdings Bhd., known as FNH.

“Part two of this saga is FNH,” said Foster at Religare.
“There is no point in being a property business with a
relatively small soft drinks and dairy business.”

FNH was unchanged from its Aug. 3 record high of 20.86
ringgit in Kuala Lumpur today. At that price the company has a
market value of 7.5 billion ringgit ($2.4 billion).

Kirin’s Interest

Kirin is interested in F&N’s soft drinks business because
of its reach in Southeast Asia, the company said Aug. 3. Coca-Cola is deciding whether to find a partner with which it can
take F&N’s line of mixers and tonics, according to one person
familiar with the matter. Kirin shares rose as much as 4.1
percent in Tokyo today.

“When we invested in F&N, we invested because we thought
F&N is our best partner in selling soft drinks in Southeast
Asia,” President Senji Miyake told reporters in Tokyo Aug. 3,
before the agreement with Heineken was reached. “We are not at
the stage to say what we are considering. We haven’t decided
whether we are ever going to propose acquisition.”

Kirin spokesman Kan Yamamoto declined to comment on the
deal, as did Vichate Tantiwanich a senior vice president at
ThaiBev and Jennifer Yu, a spokeswoman for F&N in Singapore.
Kent Landers, a spokesman for Coca-Cola, declined to comment on
market speculation when asked about the company’s interest in
F&N last week.