What price a Tiger? At Harry’s, a well-known hang-out in a strip of bars on Singapore’s Boat Quay, the answer is S$15 ($12) – about double what drinkers pay in London. That is a nasty surprise if you are new to Singapore.
But this frothy price is less shocking if you consider the valuations being placed on the maker of Tiger beer, Asia Pacific Breweries, as a bid battle for the business moves into its final stages.
Heineken, facing slow sales in its core European market, wants to take full control of APB, a fast-growing business with a strong presence in Indochina, Thailand, Singapore and Malaysia. It is one of the last available brewing assets in emerging markets, where beer sales are still holding up in spite of the global economic slowdown.
The Dutch brewer has offered S$4.2bn for a 32.4 per cent stake held by Fraser and Neave, a Singapore conglomerate, in a joint venture through which the two companies have controlled APB since Tiger beer was first brewed in British Malaya in 1931.
Not to be outdone, a Thai interloper – the country’s largest brewer ThaiBev – has tabled a rival bid for a direct stake in the brewer held by F&N separately. This values APB at about 10 per cent more than Heineken’s offer.
The Thai group is willing to pay a 48.6 per cent premium over the target’s share price the day before the deal was announced, compared with a 35.1 per cent premium offered by Heineken.
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According to Dealogic that puts ThaiBev way ahead of all deals announced so far this year globally in the food and beverage sector in terms of premium offered; the next richest is Anheuser-Busch InBev’s offer for Mexico’s Modelo brewery, at a 30 per cent premium.
ThaiBev’s eagerness to open its cheque book points to a bigger trend. Companies in southeast Asia are using strong balance sheets and large net cash piles to expand beyond their home markets, taking their first steps on a path previously taken by larger groups such as Samsung and Hyundai of South Korea and India’s Tata group.
In doing so, they are, in some cases, pushing up prices. Figures from Dealogic show that the 400 M&A deals in southeast Asia this year in which both the acquirer and target were from within the region were done at an average premium of 25 per cent. That compared with 14 per cent for all such deals last year.
Such groups are also eyeing opportunities that could come from the creation by 2015 of a common market by the 10-member Association of Southeast Asian Nations, although stubborn non-tariff barriers may threaten that target date.
ThaiBev is a case in point. It is part of TCC Holding, one of Thailand’s biggest conglomerates with interests not only in beer but also property, insurance and leasing. Its founder Charoen Sirivadhanabhakdi, a former street vendor, appears to want to take the business beyond his country’s borders.
That could come from synergies between his property interests and that of F&N, which has a large Singapore portfolio and operates thousands of serviced apartments in London, Paris, Seoul and Dubai. The clearest sign of that ambition came on Tuesday when ThaiBev secured a 26.4 per cent stake in F&N, making Charoen effectively its largest shareholder.
Elsewhere, Malaysian energy group Petronas in June struck out into North America, paying C$5.5bn for Progress Energy Resources, a Canadian company as a way of securing supplies of liquefied natural gas from the region.
What is particularly striking in Malaysia is how the overseas muscle-flexing by its large corporates is being propelled in part by cash-rich pension funds that are not even household names yet in Asia itself.
Last month London’s iconic Battersea Power Station was bought by a Malaysian consortium, including Sime Darby, the world’s largest producer of palm oil, and the Employees Provident Fund, the country’s largest pension fund. As one Singapore-based banker recently put it: “They have the biggest cheque book in the region right now and no one knows them.”
All this presents an uncomfortable dilemma for western companies – such as Heineken – keen to give their businesses more exposure to Asia at a time of anaemic growth in the west. Their home currencies – sterling, dollar, euro – have all depreciated against leading Asian currencies, including the Singapore dollar, in the past two years. So in domestic currency terms, they have to pay more.
Yet for any strategic buyer all this talk of overinflated valuations driven by bids from southeast Asian groups seems to miss an important point. Scarcity value is driving a lot of deals. After all, how often do you have a chance to bag a Tiger?