Pressure rises in F&N's Heineken dilemma

Decision on the 40% stake will be made on Friday but here's what analysts have to say on the issue.

According to Nomura, the Board of Directors of F&N has its job cut out for it as it decides on Heineken’s offer to buy its 40% stake in Asia Pacific Breweries (APB). The decision could have significant implications on the group’s future.

Here's more from Nomura:

We look at the possible issues the Board will need to consider to arrive at its decision which is expected this Friday.

How important is APB to F&N from a financial perspective? A key issue that the board needs to consider carefully is the financial impact of the divestment of APB to the group’s earnings and its future growth, in our opinion. We believe APB is indeed an important contributor to F&N. For the first-half of its current financial year, we estimate APB contributed 38% to F&N’s group earnings. Looking at the past couple of years, the contribution from APB has averaged about 20% to F&N’s group earnings, a lower number due to the strong contribution from property.

Although F&N proportionately accounts for the earnings and balance sheet of APB in its group accounts, the economic impact for the group is that it receives a steady stream of dividends from APB. In the last financial year, APB contributed dividends of S$103mn to F&N and this dividend stream has been steadily rising over the years.From the perspective of NAV, the S$50 per share price offer by Heineken values its stake in APB at S$5.2bn, or 44% of F&N’s market capitalisation (based on a share price of S$8.40).

Indeed if APB were to be divested and the proceeds distributed, F&N’s market cap will accordingly decline leaving it with property, soft-drinks and dairies and printing and publishing as its core businesses. Under that scenario, property will form an
estimated 80% of the group’s earnings.

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