Tokyo-based Kirin Holdings, one of the largest food and beverage players in Asia, has agreed to buy a 14.7% stake in Fraser and Neave (F&N) from Temasek, Singapore's state investment company, for S$1.335 billion ($978 million).
Singapore-listed F&N focuses on soft drinks and dairy products, and the deal marks the latest move by Kirin to acquire beverage companies in Asia-Pacific. F&N operates through an extensive network in Southeast Asia and is the biggest food and beverage player in Singapore as well as in Malaysia.
Kirin will buy 205 million shares from Temasek's wholly owned Seletar Investments for S$6.50 per share, which equals a 14.6% premium to yesterday's closing price. The Japanese company has signed an agreement for the acquisition and the transaction is expected to be completed by Thursday this week, according to a press release.
Kirin will fund the purchase through existing cash on hand and borrowings, the company said.
"This transaction will provide Kirin with opportunities to expand its business base in the fast-growing Southeast Asia market, and Kirin plans to work closely with F&N to enhance the enterprise for both companies," it added.
In an effort to enhance its regional footprint and product set, Kirin has invested billions of dollars over the past two years to acquire stakes in drinks and dairy companies in the Asia-Pacific region. Last year, the company paid $2.5 billion for a 54% stake in Australian beverage company Lion Nathan and invested $2.04 billion for 48% of Philippines-based San Miguel Brewery. In 2008 it bought all the equity of Dairy Farmers, also an Australian group, for $790 million.
Kirin is competing with domestic rival Asahi Breweries for Japan's top spot in beer sales, but both companies had a hard time in the first half this year, during which demand for beer fell by 4.5%, J.P. Morgan said in a recent research note. Factors behind the decline include a modest contribution from new products and a shift in demand towards non-alcoholic beers, as well as aggressive imports of cheap new genre beverages, the bank said. Kirin was recognised as the number one seller of beer in Japan in January to May this year, but trailed Asahi in June due to the latter's strong shipment volume.
Kirin hopes to be "a leading company in Asia and Oceania in the area of food and health, and it has been pursuing its business strategy focused on growing profitability in these regions and areas", the company said.
The shares in F&N account for Temasek's entire stake in the company, which the Singapore investment group bought for about S$900 million in 2006.
Temasek's net portfolio climbed 43% to a new record high of $186 billion in the 12 months to March this year. The asset value beat the previous high of $185 billion set in 2008 and far exceeded the $130 billion recorded in March 2009, according to Temasek's annual report.
Shares in F&N fell 1.4% to S$5.67 in Singapore trading yesterday before the announcement of the deal. Bank of America Merrill Lynch (BAML) was the financial adviser to Kirin on the transaction. It wasn't clear whether Temasek used any advisers.