A Brewing Takeover Battle

for F&N

Case Overview
Thai Tycoon, Charoen Sirivadhanabhakdi, initially bought an 8.6% stake in Asia
Pacific Breweries (APB) and a 22% stake in F&N from the open market. This
prompted Heineken, the largest shareholder of APB, to start a bidding war for APB
by making an offer for F&Ns entire 39.7% stake in APB. Charoen eventually gave
in to Heineken in exchange for Heinekens promise to not bid for F&Ns shares.
F&Ns sale of its prized asset, APB, to Heineken eventually sparked off a huge battle
between Charoen and Overseas Union Enterprises (OUE) for F&Ns soft drink and
property assets. Ultimately, Charoen won the takeover battle with the withdrawal of
his former bidding rival OUE, after he raised his offer from his earlier bid of S$8.88 per
share. The objective of this case is to allow discussion of issues such as takeovers
and the role of regulators, board composition and the role of the board in takeovers.

F&N: 130 Years Of Rich History

Fraser and Neave (F&N) was established by John Fraser and David Neave in 18831,
and has since established itself as a household name to many, and as a leader in
the food & beverages arena in Singapore and Malaysia. Beyond soft drinks, it also
ventured into the brewing business with the Netherlands Heineken, jointly setting
up Asia Pacific Brewery (APB) and the Tiger brand beer in 19312. It also diversified
into property and publishing businesses.

This is the abridged version of a case prepared by Cui Chunhao, Lei Xianhong, Neo Sze Ying, and Yeo
Hui Ying under the supervision of Professor Mak Yuen Teen and Dr Vincent Chen Yu-Shen. The case was
developed from published sources solely for class discussion and is not intended to serve as illustrations
of effective or ineffective management or governance. The interpretations and perspectives in this case are
not necessarily those of the organisations named in the case, or any of their directors or employees. This
abridged version was edited by Amanda Aw Yong under the supervision of Professor Mak Yuen Teen.

Copyright 2014 Mak Yuen Teen and CPA Australia.

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 A Brewing Takeover Battle for F&N

F&N is currently listed on the Singapore stock exchange3; as of 2012, F&N boasted
a market capitalisation and total assets of over S$13 billion and S$14 billion
respectively. According to the company, it has all along operated on the basis that
good corporate governance is crucial to the continuous maximisation of long-
term shareholder value4, and the company has been showing consistently strong
financials. F&Ns revenues in 2012 stood at S$5.57 billion, with a profit of S$952
million5.

Composition Of The Board

Sitting on the F&N Board were two directors who were linked to companies that
were substantial shareholders of F&N. Koh Beng Seng who was a non-executive
independent director at F&N was also a director at Great Eastern Holdings, which
was a former substantial shareholder of F&N that sold its shareholdings to Charoen
on 18 July 20126. Mr Hirotake Kobayashi was a nominee director of F&N, and
simultaneously held the position of Managing Director of Kirin Holdings, which was
another substantial shareholder of F&N7. Among the independent directors, Ho Tian
Yee had been independent director for 14 years and 10 months (as at December
2012), while Nicky Tan Ng Kuang had been independent director for 8 years and 11
months (as at September 2012)8.

Crouching Tiger, Hidden Charoen

Charoen Sirivadhanabhakdi, a Thai billionaire9, was eyeing the potential synergies
stemming from the brewing, beverage and property businesses10. In June 2012,
he met OCBCs Chairman Cheong Choong Kong, CEO Samuel Tsien, and Fang Ai
Lian, Chairman of the banks insurance unit Great Eastern Holdings, to convince
them to sell F&Ns shares11. Negotiations took almost a month and finally, on 18
July, OCBC, Great Eastern Holdings (GEH) and Lee Rubber (all controlled by the
Lee family) agreed to sell their combined 22% stake in F&N for S$8.88 per share
to Thai Beverage (ThaiBev)12. ThaiBev is a company controlled by TCC Assets
Limited (TCC), which is in turn owned by Charoen13. Part of this package deal is
the agreement that the three companies will also sell their combined 8.6%14 stake
in APB at S$45 per share to Kindest Place Groups Limited (KPGL), a company
belonging to Chotipat, who is Charoens son-in-law15. The announcement, however,
startled Heineken and forced its hand in starting a takeover bid for APBF&Ns
most prized asset.

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Tiger, Tiger, Burning Bright
APB was established as a joint venture between Heineken and F&N, and with Tiger
Beer as its flagship product16. First produced in 1932, Tiger Beer has won over 40
international awards and accolades, and a strong brand recognition has led to its
continued popularity in both Asia Pacific and globally17.

Afraid that Charoen (who was then the new major shareholder) may end up forcing
F&N to pursue a different strategy for APB, Heineken offered a buyout of the total
direct and indirect 40% stake that F&N owned in APB at S$50 per share on 20
July18. If F&Ns shareholders were to agree to this deal, Heinekens stake in APB
would increase to 81.6%, allowing it to gain full control of APB19.

Charoen launched a counter-offer on 7 August (via KPGL) to purchase F&Ns direct

7.4% stake in APB at S$55 per share - a 10% premium over Heinekens offer
price20. If successful, this effectively increases Charoens stake in the beer maker
to 15.9%. The F&N board, which had earlier accepted Heinekens offer (subject to
shareholders approval), announced that it will now evaluate Charoens higher offer.

Heineken retaliated on 18 August, making a final offer of S$53 per share for F&Ns
stake in APB21. However, this offer was still lower than KPGLs offer of S$55 per share.
Heineken then claimed that this was because [t]he unsolicited offer is not comparable
to the Heineken Offer, since Heineken was offering S$5.59 billion for a 39.7% stake in
APB whereas KPGL was offering only S$1 billion for a 7.3% share of APB22.

In an apparent reversal of his original intentions, Charoen announced on 19

September that he would support Heinekens offer for APBs stake in exchange
for Heinekens promise to not bid for F&N23. Hence, the APB battle ended on 28
September when F&N shareholders passed a resolution to divest the companys
interest in APB to Heineken.

Giving Up The Trees For The Forest

While APB was a significant profit-driver for F&N24, all was not lost for Charoen.
Even without APB, F&N still had other business segments such as the non-alcoholic
beverage business and the real estate business25. In fact, Charoen appeared to have
cleverly made use of the APB battle as a smokescreen for his ultimate takeover bid
for F&N.

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 A Brewing Takeover Battle for F&N

In the midst of the battle for APB, Charoen had quietly increased his shareholdings
in F&N to over 30%. This triggered a mandatory cash offer of S$8.88 per share26
by TCC for all the issued and paid up ordinary F&Ns shares on 13 September27.
After Charoen struck the deal with Heineken to not make a bid for F&N, it no longer
appeared as though there will be any more likely contestants, and he looked set to
be the only bidder for F&N.

A New Challenger Appears

Just as things appeared to be going smoothly for Charoen, a new competitor
presented itself in the form of Overseas Union Enterprise Limited (OUE), which is
a company controlled by the Riady family28. OUE was interested in F&Ns leading
integrated property businesses, which are complementary with its existing property
portfolio29.

To help its pursuit of F&N, OUE approached Japans Kirin Holdings Co (Kirin) -
F&Ns second largest shareholder with a 14.76% stake. Kirin is in the F&B industry
and would be interested in F&Ns F&B business segments, while OUEs core
business is in property and would be mainly interested in F&Ns property business30.
Dividing the deal would enable OUE to maximise the use of its finances as well as
minimise its upfront cost.

On 15 November, OUE made a counterbid to purchase the entire 85.2% of F&Ns

shares at S$9.08 per share (totalling S$13.1 billion); Kirin would buy over F&Ns food
and beverage business for S$2.7 billion if OUEs bid was successful. This counter-
offer signalled the start of a second bidding war - the battle for F&N.

A Make Or Break Behind The Scenes

During the bidding war, it was revealed that F&Ns nine-member board actually
incentivised OUE with a break fee of up to S$50 million. This break fee was to
cover OUEs takeover expenses and will be paid to OUE in the event that they lose
the bid31. In short, the break fee ensured that OUE has nothing to lose in either
situation32.

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Apparently, this was not the first time that the F&N board had offered a break fee
to Charoens competitor. Heineken also had a break fee clause in its revised offer
for APB, which set aside over S$56 million to be paid to Heineken in the event that
shareholders do not approve of the APB takeover, or if the F&N board does not
recommend the offer, or fails to fulfil its other obligations33.

Therefore, it appeared as though the board had shown favouritism to Charoens

competitors. The F&N board defended itself by saying that the break fee was to
create a competitive bid situation, thereby maximising value for shareholders34.

Breaking The Deadlock

F&Ns independent directors considered both Charoen and OUEs bids as not
compelling, but fair35. Meanwhile, both parties refused to budge and instead
extended the deadline of their offers several times. The impasse saw the SGX
introduce, for the first time, an auction process to resolve the stalemate. SGX set
a deadline of 20 January 2013 for both companies to make a final offer, and an
auction process will be held if the stalemate remained36.

On 18 January, two days before SGXs mandated deadline, Charoen revised

his mandatory cash offer to S$9.55 per share37, thereby exceeding OUEs bid.
Unexpectedly, the 20 January SGX deadline passed without OUE raising its bid.
Thereafter, OUE withdrew its bid, citing the recent cooling measures in Singapores
property market as the rationale38.

Even so, Charoen continued to acquire shareholdings of F&N39 from various

shareholders and the open market before TCCs offer expired. His efforts finally
paid off on 31 January, when he achieved 50.92% ownership of F&N and became
the majority shareholder of F&N. This made his takeover offer unconditional40, and
further ensured that even if anyone else bids for F&N, he would be the deciding
factor in the bid.

Subsequently, four members of the F&N board of directors who owned F&N shares,
Lee Hsien Yang, Timothy Chia Chee Ming, Tan Chong Meng, and Nicky Tan Ng
Kuang, expressed their intention to accept the revised TCCs offer to buy their
shares41. Kirin also agreed to sell its 14.76% stake to TCC for approximately S$2
billion42. All of these boosted Charoens control of the drinks and property group to
82.59%43.

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 A Brewing Takeover Battle for F&N

Nothing To See Here, Lets Go Home

In a surprise move before the dust had fully settled, F&Ns directors said its entire
board would resign en masse after the closure of Charoens offer44. Chairman Lee
said at the AGM on 29 January that this changing of guards would allow Charoen a
free hand to appoint a board to chart a course forward for the company45.

The directors resignation came into effect on 27 February 2013, with Thapana and
Chotiphat being appointed to the board on the very same day46.

And so, Singapore will now witness a local historic brand switch over to foreign
ownership.

Discussion Questions
1. Would you consider the takeover of F&N hostile? Can you identify any takeover
defence mechanisms implemented here? How would the situation change if
the takeover took place in the U.S.?

2. Do you think the board composition was appropriate? Do you think the board
acted reasonably during the whole takeover proceedings?

3. What regulatory bodies are involved in overseeing takeovers in Singapore and

what are their roles?

4. Explain whether you think F&Ns offer of break fees to both of Chaorens
competitors in both takeovers is appropriate.

5. F&N (shares) have been held by families for generations. We are losing it to a
foreign company so its a bit sad, Mr Michael Tay, 55, told The Straits Times
on the sidelines of the meeting. If you were a minority shareholder of F&N, how
would you feel on knowing that the entire board resigned en masse upon the
takeover of F&N? Do you think your interests were adequately protected?

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