(BN) F&N Seen Breaking Up in Singapore After Heineken Sale

Aug. 6 (Bloomberg) -- Fraser and Neave Ltd.'s agreement to sell its 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.

'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."

Shares of FNH climbed 4.3 percent to a record closing high of 20.86 ringgit in Kuala Lumpur on Aug. 3, giving the company a market value of 7.5 billion ringgit ($2.4 billion). Trading of F&N and APB shares in Singapore was halted. F&N last closed at S$8.15 on Aug. 1, the last day it traded, while APB was at S$49.50. Heineken rose 3.4 percent to 45.98 euros in Amsterdam.

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.

"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."

Vichate Tantiwanich a senior vice president at ThaiBev declined to comment, while Jennifer Yu, a spokeswoman for F&N, couldn't be reached, after news of the agreement with Heineken was reported. 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.