Board bolstered defences over fear of takeover move by Heineken
When Lee Hsien Yang takes over as chairman and consultant to Fraser & Neave today, some members of its board will quietly congratulate themselves.
For, unknown to the public at large, the company has been bolstering its defences against a possible takeover bid by global brewing giant Heineken.
F&N has also been worried that Heineken could try to take control of its subsidiary Asia Pacific Breweries and Mr Lee's appointment is just one of the moves it has made to stop that from happening.
Some 10 months and $900 million later, the story can now be told.
When Temasek Holdings moved to purchase a 15 per cent stake in the company for $900 million in December 2006, it was seen as capital injection for F&N and a portfolio investment for Temasek. Apparently, there was more to it.
F&N, which has interests in property, food and beverage, and publishing, has been doing all it can to ensure that it remains a Singapore-owned entity.
BT understands that the Temasek deal was brokered by accountant Nicky Tan of nTan Corporate Advisory, who is also on F&N's board. The move also stemmed from concern that Heineken was eyeing APB in which it already holds substantial stakes along with F&N.
For some time now, Heineken has been brooding over its contractual obligations under its 1931 joint venture with F&N in APB.
The two jointly own a stake of about 65 per cent in APB through their equally owned Asia Pacific Investment Pte Ltd (APIPL). And F&N separately owns a direct stake of about 7.3 per cent in APB while Heineken has a direct stake of about 9.5 per cent, all through open market purchases. In other words, F&N's total stake in APB is around 39.8 per cent while that of Heineken is around 42 per cent.
Under the terms of their 1931 joint venture agreement, Heineken is prevented from setting up breweries in Asia on its own. Expansion in the Asia-Pacific region, one of the fastest growing beer markets in the world, can only be done through APB.
As Heineken Asia-Pacific's president Siep Hiemstra recently acknowledged, the Dutch company was keen on increasing its stake in APB.
So there was concern within F&N that it might become a takeover target for Heineken. The market capitalisation of the Singapore company is under $7 billion. Investing about $3.5 billion would have given Heineken control and allowed it to be free of its contractual shackles.
Apparently F&N's board got wind of this possibility and Nicky Tan was said to have persuaded the directors to bring in Temasek. The reasoning was that this would make Heineken think twice before trying to take control of one of Singapore's most iconic brands.
Tension between F&N and Heineken was so high at one stage that late last year Heineken filed a summons in the High Court here to obtain a declaration as to who was entitled to appoint the regional director for APB's China operations. Heineken claimed that under an October 2002 agreement it had the right to appoint the China regional director.
However, the High Court here found in favour of F&N and the suit was dismissed with costs. APB subsequently appointed F&N's then chief operating officer (food and beverage), Huang Hong Peng, to the job to replace Heineken's choice, Frederick Linck.
A pre-nuptial agreement before the joint venture was formed allows F&N to appoint APB's chief executive and top management, and this is what allows APB to be considered a subsidiary of F&N although the latter owns less than 50 per cent of the brewer of the famous Tiger Beer.
The investment by Temasek was initially seen as a move by the Singapore investment company to inject capital into F&N.
Said F&N's then chief executive Han Cheng Fong: 'We welcome Temasek's participation to strengthen the growth potential of F&N's food and beverage business. Temasek Holdings, a leading investor in Asia with considerable experience in investing and nurturing businesses, will add tremendous value to all of the company's stakeholders going forward.'
At the same time, however, he hinted that F&N intended to remain firmly entrenched in beer making and hold on to its stake in APB, saying: 'The brewing business is attractive. We intend to grow it through more acquisitions, extend our market reach and grow our brands.'
Heineken, however, wanted to get rid of its constraints and push its brand at a much faster pace than APB was doing, as the latter's priority was promoting the Tiger brand.
Until a couple of years ago, Heineken did not want to brew its beer in APB's refineries in China, preferring instead to import from its breweries outside the country. As a result, all parties suffered because of underutilised capacity. Until the last financial year, their Chinese breweries, as a whole, ran at a loss.
But just over two years ago, the operations there were consolidated under Heineken-APB (China) Pte, which now manages about a dozen breweries on the mainland and in Hainan. Its capacity, including those of associate companies, has risen from 4.2 million hectolitres in 2003 to nearly 23 million hectolitres now.
Things have also appeared better between the Dutch and Singapore partners, with Mr Hiemstra likening the dispute to a rough spot that can hit even successful marriages.
'We have moved on. Since then, we have started new projects. We are both public companies, we have shareholders and a business to run and we do that,' he told the media a few months ago.
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