F&N / ThaiBev

F&N / ThaiBev: UOB Kay Hian note that the potential final twist could be a struggle for F&N itself as ThaiBev’s stake in F&N of 29% is within a whisker of the 30% mandatory general offer level. House believe 2 scenarios could pan out in the near term. However, think these two near-term scenarios will subsequently lead to other developments later as a potential break-up of F&N cannot be ruled out. The near-term scenarios are: 1) F&N shareholders accepting Heineken’s final offer of S$53.00/share for APB, thus leading to the privatization of APB. 2) F&N shareholders reject Heineken’s final offer, maintaining the current status quo and incurring a break fee of $55.9m For Thai Bev, the clear target would be APB given the direct synergies and the fact that F&N, excluding APB, would largely derive its value from property. Under this scenario, F&N may not be strategic for ThaiBev unless it plans to venture into property development. As for Kirin, believe Kirin could be persuaded to support F&N’s board to sell APB to Heineken. See possibilities to entice Kirin including an offer of a first right of refusal by F&N to Kirin should F&N decide to dispose its non-alcoholic assets. In addition, confidence of F&N’s mgt to secure shareholders’ approval is apparent since it has provided a “break fee” clause of $55.9m to Heineken. Valuation: Assuming F&N shareholders accept Heineken’s bid, follow up would be 1-for-3 capital reduction exercise for F&N. Under scenario, estimate RNAV of $10.40/share. After apital reduction exercise, more than 80% of its RNAV will consist of property-related assets. As such, mkt may impose higher discount of 15-20%, which will see F&N at $8.30-8.85/share. However, should F&N’s shareholders reject Heineken’s bid, estimate a RNAV of $9.76/F&N share. Under this scenario, think a lower discount of 5-10% may be imposed given a lower proportion of property assets as a total of F&N’s RNAV (55% of total RNAV from property). Based on a discount of 5-10%, the potential valuation range should FNN not dispose APB would be $8.80-9.25