Kirin Holdings Co. (2503), Japan’s largest brewer by market value, is considering a bid for Fraser & Neave Ltd.’s soft drinks and dairy businesses, said three people with knowledge of the matter.
The people, who asked not to be identified as the deliberations are private, didn’t say how much Kirin would offer for the operations. One person said an acquisition of the food and beverage operations is one of the options Kirin is considering. Kirin spokesman Kan Yamamoto declined to comment.
Buying the F&N businesses would jump-start Kirin’s expansion in Southeast Asia, where soft-drink sales are rising as beer consumption slows in Japan. F&N’s stakes in food and beverage businesses with operations in Malaysia, Vietnam and Thailand have a market value of about S$2.7 billion ($2.1 billion), according to estimates by Nomura Holdings Inc.
“There aren’t many attractive companies to acquire,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. “Expanding in emerging markets makes sense as it takes time to grow if you start from scratch.”
F&N shares rose 0.4 percent to a record S$8.38 at the close in Singapore, giving it a market value of about S$12 billion. Kirin, which already owns 15 percent of F&N, fell 0.9 percent to close at 876 yen in Tokyo.
Thai billionaire Charoen Sirivadhanabhakdi sparked consolidation in Southeast Asia’s beverage industry when his Thai Beverage Pcl (THBEV) agreed on July 18 to buy a 22 percent stake in F&N. At the same time, Charoen’s son-in-law stuck a deal to purchase almost 9 percent of Asia Pacific Breweries Ltd. (APB) F&N, which owns 40 percent of APB, the maker of Tiger beer, said today that ThaiBev increased its stake to 23.9 percent.
Two days later, Heineken NV (HEIA), the world’s third-biggest brewer and the owner of a 42 percent stake in APB, struck back with a S$7.5 billion offer to buy the rest of the company.
Kirin “knew they can’t take the beer business, so this shows their will to not let go of the soft drink part,” said Mikihiko Yamato, deputy head of research for JI Asia in Tokyo. “It’s better for Kirin to move than not move.”
Singapore-based F&N has been in the food and beverage business since 1883, producing soft drinks, milk drinks, ice cream and isotonic drinks under F&N Foods Pte. and Malaysia’s Fraser & Neave Holdings Bhd. (FNH), according to its website.
“Operationally they are doing quite well and overall they have a sizeable market share,” said Low Soo Fang, a Kuala Lumpur-based analyst at AMMB Holdings Bhd (AMM), referring to Fraser & Neave Holdings Bhd. “It would not be cheap for Kirin, and they would have to offer something quite compelling because there is a scarcity of quality names here.”
Fraser & Neave Holdings, 56 percent owned by F&N, has risen 2.2 percent in Kuala Lumpur trading this year, giving the company a market value of 6.7 billion ringgit ($2.1 billion). Nomura’s valuation of F&N’s food and beverage operations excludes the APB stake and a brewery in Myanmar.
F&N, the biggest seller of soft drinks in Malaysia and Singapore (FNN), also accounts for more than half of sales of mixers, tonic, and seltzer in Indonesia, according to data from Euromonitor International.
F&N also owns a real estate business with shopping centers, serviced apartments and industrial property. With sales of S$2.1 billion, real estate accounted for 34 percent of revenue last year, data compiled by Bloomberg show. The dairy business reported sales of S$1.1 billion in 2011, while the soft drinks unit had S$759 million of revenue, the data show.
“A break-up of the group could actually create, not destroy, value for shareholders,” Jonathan Foster, Singapore- based director of Global Special Situations at Religare Capital Markets Ltd., said before today’s news. “You’re selling the components at a premium to market price.”
Industrywide beer sales in Japan fell 3.7 percent to 442 million cases last year. Soft-drink sales in 10 Southeast Asian countries increased by an average 7 percent last year, Euromonitor data show.
Kirin’s 2011 profit dropped 35 percent as the value of its Sydney-based Lion unit and investments declined. Net income fell to 7.4 billion yen from 11.4 billion yen the previous year.
Among other acquisitions, Kirin agreed to buy out shareholders in Schincariol Participacoes e Representacoes in November 2011. The deal at that time valued the Brazilian company at about $3.6 billion excluding debt, when combined with the initial purchase of a 50.45 percent stake.
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