- Kindest Place makes S$55/share offer for FNN’s 7.3% direct stake in APB
- A “double-or-nothing” move seemingly to force Heineken to raise its offer for APB
- A matching or higher counter-offer appears likely
- Expect a knee-jerk positive reaction on share price; Hold maintained
Kindest offer of S$55/share. Kindest Place Groups Limited (KPGL) has made an unsolicited offer to FNN for its directly owned 18.75m shares (c.7.3%) in APB for S$55/share (a 10% premium to Heineken’s offer price of S$50/share), equating to about S$1.03bn. KPGL currently has deemed interest of 8.6% stake in APB through an earlier transaction.
Edging for a higher counter-bid? We see this as a shrewd move, likely to force Heineken’s hand to raise its S$50/share offer. This seems like a “double-or-nothing” strategy by KPGL to maximize profits on its initial cost of investment for the 8.6% stake. If successful, this could reap S$222m for KPGL.
Actions from Heineken? We envisage two options for Heineken:
(1) raise their offer to match KPGL’s S$55/share;
(2) do nothing and stick with their earlier S$50/share offer. The latter could result in parties related to Thai Bev ending with a majority direct and deemed interest, which in our view, is not a scenario Heineken would like to entertain. As such, we believe the former seems a more likely outcome.
Maintain Hold, higher TP at S$8.99. We maintain our Hold recommendation, but raise our TP to S$8.99, based on 15% discount to RNAV of S$10.58, after imputing S$55/ APB share. While we expect FNN’s share price to see a positive knee jerk reaction to this latest development, we believe any new positions by investors should be taken more for speculative reasons, and for those who are willing to take a bet on how this saga unfolds, rather than from a fundamental perspective.
Kindest Place makes unsolicited bid for 7.3% stake in APB for S$1.03bn (S$55/share)
In the latest twist, Kindest Place Groups Limited (KPGL) has made an unsolicited offer on 7 August to FNN for its directly owned 18.75m shares (c.7.3%) in APB for S$55/share. This equates to about S$1.03bn. KPGL is owned by Chotiphat Bijananda, who is the son-in-law of Charoen Sirivadhanabhakdi, majority owner of Thai Bev. KPGL has deemed interest of 8.6% stake in APB through its earlier transaction with OCBC Bank, Great Eastern Holdings and Lee Rubber.
FNN’s Board to review offer. FNN has indicated that its Board will review and evaluate the offer.
Our views:
A move to force Heineken’s hand. We think this is a shrewd move, more to force Heineken’s hand to raise its S$50/share offer. This seems like a “double-or-nothing” strategy by KPGL to maximize profits on its initial cost of investment for the 8.6% stake. At S$55/share, if Heineken raises its offer, this would double the returns for KPGL to S$222m on its initial investment.
Does the direct stake fall within the JV agreement between FNN and Heineken in APIPL (Asia Pacific Investment Pte Ltd)? We understand that FNN and Heineken’s major interest in APB is through the 50:50 JV, APIPL; and, there could be provisions for a right-of-first-refusal to the JV partner in the event of disposal by the other party. Given that FNN’s Board has indicated that it would review and evaluate the latest offer by KPGL, we have grounds to believe that its direct stake does not fall under the terms of the JVA.
What about Heineken’s original offer of S$50/share that has been accepted by FNN’s Board? According to FNN’s announcement on 3 Aug, we understand that there are conditions attached to the acceptance of Heineken’s offer, such as subject to finalization of definite legal agreements, the Board recommending to the shareholders, and shareholders’ approval. Hence, with the latest offer from KPGL at 10% premium (despite being a minority stake), FNN’s Board may not recommend to shareholders to vote in favour of Heineken’s S$50/share offer.
What could be Heineken’s next course of action?
1) Raise its offer to match KPGL’s S$55/share. The easiest option is to raise their offer to S$55/share to match KPGL’s. With that, this would represent an additional 10% premium to its original offer, and would value APB at an LTM (last 12 months) EV/EBITDA of c.19x and LTM PE of c.37.7x. However, the exercise would cost Heineken about S$5.6bn, c.S$512m more for the 39.7% stake, and a maximum of S$2.6bn for an eventual general offer.
2) Do nothing and stick with its earlier S$50/share offer, and await outcome of FNN shareholders’ approval. With this option, it is likely that the S$50/share offer may not be accepted by FNN’s shareholders. And, assuming KPGL’s offer is accepted, this could mean that KPGL would end up owning a 15.9% (8.6% + 7.3%) direct stake in APB. In this scenario, FNN would only have an effective indirect stake of 32.4% in APB through Asia Pacific Investment Pte Ltd (APIPL), Heineken with a 42% deemed interest, and KPGL with 15.9% direct stake.
In our view, this may not be a situation that Heineken would like to find themselves in, given that this opens up the possibility that parties related to Thai Bev could end up with a collective majority stake, directly or indirectly.
In fact, there is also a possibility that the Board may not make a recommendation to vote in favour of the sale to Heineken, now with the offer from KPGL for a minority 7.3% stake.
Option 1 could be the likely outcome. At this juncture, we believe a likely scenario to take place would be for Heineken to raise its offer. However, they could likely achieve a tacit agreement with KPGL to accept S$55/share for its 8.6% stake. But, would KPGL then counter with an even higher offer, and thus turn this into a speculative bidding process? We think this outcome is unlikely as there should be a limit to this process. While the FNN Board of Directors would like to maximize shareholder value, they would then have to make a decision to decide to further review and evaluate another counter offer. Furthermore, KPGL may also risk getting caught with Heineken not offering an even higher price.
Valuation
S$55/share for APB, adds S$0.35 to FNN’s RNAV. We have imputed S$55/share into our RNAV for FNN, thereby raising our RNAV to S$10.58. This raises our TP to S$8.99 (from S$8.68, previously), still based on 15% discount to our RNAV. Stripping the value of APB at S$55/share and F&N Berhad (FNB) at current market price, our FNN TP (ex APB & FNB) equates to a 30% discount to its RNAV, similar to our property counters.
Maintain Hold, TP at S$8.99. We maintain our Hold recommendation. While we expect FNN’s share price to react positively to this latest development (particularly when the market opens on 8 Aug), we believe any new positions by investors should be taken from a speculative perspective, and for those who are willing to take a bet on how this saga unfolds.
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