Fraser & Neave (F & N)

[weijian]

hi ghchua,

Just to clarify, my earlier post is just directed at the question of whether "there will be a privatization effort" posted by VB Curiousparty. Nothing much about the business of F&N.

Obviously, some of us have been in this forum long enough to discern between a good investment and good company. Just like how a P/E=50 company (reflecting high investors' expectations) just need a little disappointment for a big drop, a P/E=5 company (reflecting low investors' expectations) also just need a little positive surprise for a decent gain.

My only reservation is that OPMIs may not be able to capture much gain, especially after looking at the structure. And also how long that gain may be. Our Thai GodFather didn't really get so rich by sharing his riches consistently. This is one elephant that I realized that I have no temperament to ride with.

[donmihaihai]

The bidding takeover ended when Thai billionaire topped with a generous $9++ bid. That was like 11 years back. F&N shareholders back then who accepted it and owned F&N shares before the bidding of Asia pacific breweries would be very happy on the outcome. Those who did not, one can do the calculation from then till now return.

Around 2014 was also a period where companies like F&N, Super Group, Delfi, Food Empire were trading at rich valuation. Not anymore. There will be investors who rode all the way down and new investors will be looking at these companies, except Super Group currently, trying to ride them up.

Vinamilk look valuable now, but it was more valuable back in 2017, more than 2X current price, when additional purchases turned Vinamik into associate from investment. What would the future be?

Since F&N is part of Thai billionaire empire, isn't trying to figure out whether to privatise F&N or not will require thinking like what would he do with the amount of capital on hand and where to deploy? That is assuming he is not going to do another F&N.

[specuvestor]

The Thai billionaire is more concerned about the LBO cashflow than valuations per se with Thai Bev cashflow as the anchor. That's why there was a rapid succession of restructuring including REITs and bonds before the onset of GFC. The other one that pulled this off was Lippo with OUE etc if I remember correctly.

Frankly it was quite an awesome spectacle as a bystander to see all these deals fast forwarded (not PLAY out mode) within 2 years

IMHO I agree as an empire builder he will be more interested with acquisitions and deploying capital that will leverage on a listco cashflow rather than privatise. That said the dividend payout will continue to be optimal as it's a cashflow upwards that will help to delever.

[Curiousparty]

any idea why is F&N doing share buyback everyday now?

[jaco]

any idea why is F&N doing share buyback everyday now?

There was a recent share-swap of F&N shares between Thai Beverage PLC and TCC Assets Limited. In principle, this share-swap could have been done already a decade ago after Thai tycoon Charoen Sirivadhanabhakdi won control over F&N. Charoen, 80 years old, has not been active in public life lately. We could speculate that 1. Charoen has entrusted his children with running the conglomerate and 2. that his children follow a more conventional business approach to organizing the operations. The share-swap concentrates the F&B activities within ThaiBev and the property activities within TCC; a structure that any conventional strategic advisor would recommend.

Such an advisor would also recommend to take F&N private with ThaiBev, with almost 90% of the F&N shares held already by ThaiBev and other entities controlled by Charoen Sirivadhanabhakdi. ThaiBev/TCC has denied that such an intention currently exists. ThaiBev's leverage is on the high side at the moment, so spending funds on a privatization might be too risky for them now.

When F&N buys its own shares and cancels them, that means a privatization by ThaiBev will be cheaper to execute. Hence, I wonder if the share buybacks that you mention, indicate a desire/intention for a privatization in the further future.

In the share-swap between Thai Beverage PLC and TCC Assets Limited, the F&N shares were valued at SGD 3.55.  Common sense tells me that, in the case of a F&N privatization, Singaporean market authorities would not allow a bid that would be much different from the SGD 3.55, even though F&N is quoted at 1.37 SGD right now.

[weijian]

There was a recent share-swap of F&N shares between Thai Beverage PLC and TCC Assets Limited. In principle, this share-swap could have been done already a decade ago after Thai tycoon Charoen Sirivadhanabhakdi won control over F&N. Charoen, 80 years old, has not been active in public life lately. We could speculate that 1. Charoen has entrusted his children with running the conglomerate and 2. that his children follow a more conventional business approach to organizing the operations. The share-swap concentrates the F&B activities within ThaiBev and the property activities within TCC; a structure that any conventional strategic advisor would recommend.

Such an advisor would also recommend to take F&N private with ThaiBev, with almost 90% of the F&N shares held already by ThaiBev and other entities controlled by Charoen Sirivadhanabhakdi. ThaiBev/TCC has denied that such an intention currently exists. ThaiBev's leverage is on the high side at the moment, so spending funds on a privatization might be too risky for them now.

When F&N buys its own shares and cancels them, that means a privatization by ThaiBev will be cheaper to execute. Hence, I wonder if the share buybacks that you mention, indicate a desire/intention for a privatization in the further future.

In the share-swap between Thai Beverage PLC and TCC Assets Limited, the F&N shares were valued at SGD 3.55.  Common sense tells me that, in the case of a F&N privatization, Singaporean market authorities would not allow a bid that would be much different from the SGD 3.55, even though F&N is quoted at 1.37 SGD right now.

hi jaco,

I took a look at the share swap slides a couple of months back.

- The most noticeable thing is this: Post swap, why does TCCAL still owns ~17.6% of F&N? Mathematically speaking, it meant that the swap price for F&N was "too high". IFAs had verified that the swap prices for F&N and FPL were "fair and reasonable" but since no cash was involved, it doesn't really matter, isn't it? Or another way to look at it - Why didn't ThaiBev pay cash to fully take the remaining 17.6% of F&N from TCCAL?

- With 69.6% ownership, F&N is now a subsidiary of ThaiBev. ThaiBev will change its accounting from equity method (where declared dividends from F&N has this "weird" effect of reducing its equity stake on its BS) to consolidation on its balance sheet. ThaiBev's gearing is much higher than F&N's and so consolidation has the effect of reducing ThaiBev's own gearing levels, compared to increasing it whenever F&N declared a dividend under equity accounting (<50%).

- Along these lines, the key question is whether Chaoren has the motivation to change the post swap share structure for TCCAL (fully owned subsidiary of listed parent TCC Group) and ThaiBev or not. Also important is whether ThaiBev has the resources to pay "fair and reasonable" prices or not. Ultimately, anything that is been done is to maximize his empire and not his partners' wealth. The wealth creation for his partners (ie. OPMIs) was already completed 10years ago.

share swap slides (pg5):
https://links.sgx.com/FileOpen/Investor_...eID=817579

[jaco]

There was a recent share-swap of F&N shares between Thai Beverage PLC and TCC Assets Limited. In principle, this share-swap could have been done already a decade ago after Thai tycoon Charoen Sirivadhanabhakdi won control over F&N. Charoen, 80 years old, has not been active in public life lately. We could speculate that 1. Charoen has entrusted his children with running the conglomerate and 2. that his children follow a more conventional business approach to organizing the operations. The share-swap concentrates the F&B activities within ThaiBev and the property activities within TCC; a structure that any conventional strategic advisor would recommend.

Such an advisor would also recommend to take F&N private with ThaiBev, with almost 90% of the F&N shares held already by ThaiBev and other entities controlled by Charoen Sirivadhanabhakdi. ThaiBev/TCC has denied that such an intention currently exists. ThaiBev's leverage is on the high side at the moment, so spending funds on a privatization might be too risky for them now.

When F&N buys its own shares and cancels them, that means a privatization by ThaiBev will be cheaper to execute. Hence, I wonder if the share buybacks that you mention, indicate a desire/intention for a privatization in the further future.

In the share-swap between Thai Beverage PLC and TCC Assets Limited, the F&N shares were valued at SGD 3.55.  Common sense tells me that, in the case of a F&N privatization, Singaporean market authorities would not allow a bid that would be much different from the SGD 3.55, even though F&N is quoted at 1.37 SGD right now.

hi jaco,

I took a look at the share swap slides a couple of months back.

- The most noticeable thing is this: Post swap, why does TCCAL still owns ~17.6% of F&N? Mathematically speaking, it meant that the swap price for F&N was "too high". IFAs had verified that the swap prices for F&N and FPL were "fair and reasonable" but since no cash was involved, it doesn't really matter, isn't it? Or another way to look at it - Why didn't ThaiBev pay cash to fully take the remaining 17.6% of F&N from TCCAL?

- With 69.6% ownership, F&N is now a subsidiary of ThaiBev. ThaiBev will change its accounting from equity method (where declared dividends from F&N has this "weird" effect of reducing its equity stake on its BS) to consolidation on its balance sheet. ThaiBev's gearing is much higher than F&N's and so consolidation has the effect of reducing ThaiBev's own gearing levels, compared to increasing it whenever F&N declared a dividend under equity accounting (<50%).

- Along these lines, the key question is whether Chaoren has the motivation to change the post swap share structure for TCCAL (fully owned subsidiary of listed parent TCC Group) and ThaiBev or not. Also important is whether ThaiBev has the resources to pay "fair and reasonable" prices or not. Ultimately, anything that is been done is to maximize his empire and not his partners' wealth. The wealth creation for his partners (ie. OPMIs) was already completed 10years ago.

share swap slides (pg5):
https://links.sgx.com/FileOpen/Investor_...eID=817579

Hello Weijian,

Thanks for responding. I agree that it is possible, maybe even likely, that the share swap didn't signal anything about the future of F&N. Mr. Market seems to think so, considering that the F&N share price is nowhere near 3.55, although it did jump after the share swap was announced.

Let me assure you that I am not betting the house on a privatization. I was already a F&N shareholder long before the share swap and satisfied how F&N develops its business, esp the core F&N holding in Malaysia.

Yet, let me respond to your points at least one round. Maybe it will lead to more insights. In the same order as your points...

- As observed, ThaiBev is leveraged so they may have considered it unwise to dedicate funds to the purchase of TCCC's full stake in F&N now. They could always do that in conjunction with a general privatization of F&N, for example when the funds of their planned BeerCo spin-off are available.

- Agree with the consolidation effect in the public reporting. However, if this argument weighs heavily, why not do the share-swap already years ago? Also, I wonder if the better looking consolidated financials really help ThaiBev. I would assume that ThaiBev's lenders would look 'under the hood' and realize that F&N can not freely redirect cash flows to ThaiBev. Any equity analyst, or at least the buy-side ones, would realize that too.

- You are correct that past behavior is the best predictor of future behavior. Yet, we may wonder if Charoen is still in control or his children. Let's also note that maintaining a listed company is costly. In addition, the separate year reports force them towards more transparency as they might appreciate. It seems a lot of money and complexity to remain listed for those ~10% shares that they don't control.

[owq]

There was a recent share-swap of F&N shares between Thai Beverage PLC and TCC Assets Limited. In principle, this share-swap could have been done already a decade ago after Thai tycoon Charoen Sirivadhanabhakdi won control over F&N. Charoen, 80 years old, has not been active in public life lately. We could speculate that 1. Charoen has entrusted his children with running the conglomerate and 2. that his children follow a more conventional business approach to organizing the operations. The share-swap concentrates the F&B activities within ThaiBev and the property activities within TCC; a structure that any conventional strategic advisor would recommend.

Such an advisor would also recommend to take F&N private with ThaiBev, with almost 90% of the F&N shares held already by ThaiBev and other entities controlled by Charoen Sirivadhanabhakdi. ThaiBev/TCC has denied that such an intention currently exists. ThaiBev's leverage is on the high side at the moment, so spending funds on a privatization might be too risky for them now.

When F&N buys its own shares and cancels them, that means a privatization by ThaiBev will be cheaper to execute. Hence, I wonder if the share buybacks that you mention, indicate a desire/intention for a privatization in the further future.

In the share-swap between Thai Beverage PLC and TCC Assets Limited, the F&N shares were valued at SGD 3.55.  Common sense tells me that, in the case of a F&N privatization, Singaporean market authorities would not allow a bid that would be much different from the SGD 3.55, even though F&N is quoted at 1.37 SGD right now.

hi jaco,

I took a look at the share swap slides a couple of months back.

- The most noticeable thing is this: Post swap, why does TCCAL still owns ~17.6% of F&N? Mathematically speaking, it meant that the swap price for F&N was "too high". IFAs had verified that the swap prices for F&N and FPL were "fair and reasonable" but since no cash was involved, it doesn't really matter, isn't it? Or another way to look at it - Why didn't ThaiBev pay cash to fully take the remaining 17.6% of F&N from TCCAL?

- With 69.6% ownership, F&N is now a subsidiary of ThaiBev. ThaiBev will change its accounting from equity method (where declared dividends from F&N has this "weird" effect of reducing its equity stake on its BS) to consolidation on its balance sheet. ThaiBev's gearing is much higher than F&N's and so consolidation has the effect of reducing ThaiBev's own gearing levels, compared to increasing it whenever F&N declared a dividend under equity accounting (<50%).

- Along these lines, the key question is whether Chaoren has the motivation to change the post swap share structure for TCCAL (fully owned subsidiary of listed parent TCC Group) and ThaiBev or not. Also important is whether ThaiBev has the resources to pay "fair and reasonable" prices or not. Ultimately, anything that is been done is to maximize his empire and not his partners' wealth. The wealth creation for his partners (ie. OPMIs) was already completed 10years ago.

share swap slides (pg5):
https://links.sgx.com/FileOpen/Investor_...eID=817579

Hello Weijian,

Thanks for responding. I agree that it is possible, maybe even likely, that the share swap didn't signal anything about the future of F&N. Mr. Market seems to think so, considering that the F&N share price is nowhere near 3.55, although it did jump after the share swap was announced.

Let me assure you that I am not betting the house on a privatization. I was already a F&N shareholder long before the share swap and satisfied how F&N develops its business, esp the core F&N holding in Malaysia.

Yet, let me respond to your points at least one round. Maybe it will lead to more insights. In the same order as your points...

- As observed, ThaiBev is leveraged so they may have considered it unwise to dedicate funds to the purchase of TCCC's full stake in F&N now. They could always do that in conjunction with a general privatization of F&N, for example when the funds of their planned BeerCo spin-off are available.

- Agree with the consolidation effect in the public reporting. However, if this argument weighs heavily, why not do the share-swap already years ago? Also, I wonder if the better looking consolidated financials really help ThaiBev. I would assume that ThaiBev's lenders would look 'under the hood' and realize that F&N can not freely redirect cash flows to ThaiBev. Any equity analyst, or at least the buy-side ones, would realize that too.

- You are correct that past behavior is the best predictor of future behavior. Yet, we may wonder if Charoen is still in control or his children. Let's also note that maintaining a listed company is costly. In addition, the separate year reports force them towards more transparency as they might appreciate. It seems a lot of money and complexity to remain listed for those ~10% shares that they don't control.

Hi jaco,

ThaiBev does not necessarily have to pay cash in full, as it can use its own shares to pay for TCCAL's stake, as long as TCCAL is willing. Depending on the ratio, it might reduce their leverage

Given that ThaiBev already has majority stake, there is no real rush for ThaiBev to consolidate its control, given that the 2 primary objectives of the share swap has been achieved (discard non-core business and consolidate core business)

I am also wondering the benefits of holding such a tight stake and keeping it listed. Frasers Property is also tightly held. Other unrelated companies like Great Eastern, Silverlake Axis also come to mind. Could the extreme majority control have some premium that outweigh the costs?

[jaco]

Hi jaco,

ThaiBev does not necessarily have to pay cash in full, as it can use its own shares to pay for TCCAL's stake, as long as TCCAL is willing. Depending on the ratio, it might reduce their leverage

Given that ThaiBev already has majority stake, there is no real rush for ThaiBev to consolidate its control, given that the 2 primary objectives of the share swap has been achieved (discard non-core business and consolidate core business)

I am also wondering the benefits of holding such a tight stake and keeping it listed. Frasers Property is also tightly held. Other unrelated companies like Great Eastern, Silverlake Axis also come to mind. Could the extreme majority control have some premium that outweigh the costs?

Hello owq,

I have seen such listings before. Usually, we can only guesstimate at the true motivation of the majority owners to keep such companies listed, but a few reasons come to mind.

1. Lack of money in the parent company to take the listed entity private. However, as you pointed out, in this case the payment could be done with ThaiBev shares. 2. Sometimes companies like to have an ongoing, external valuation of their business, for example to facilitate employee share option plans. The public market also provides an opportunity for employees to cash out their share holdings. However, in this case, the ThaiBev listing could be used for that. 3. A bit darker reason to keep companies listed, is to give the majority owners a valuation of their shares for their tax filings. In many jurisdictions you owe tax over the size of your wealth or the increase of your wealth. If the tax collector accepts the stock market valuation of your company for this purpose, there is an incentive to keep the company listed and to keep the share price low. I don't think this applies to Singapore or Thailand though.

There may be other factors such as the status and pride of owning a publicly listed company.

[weijian]

@jaco,

It seems that a F&N OPMI needs to have insights on ThaiBev and not on their own company, if they want to have better odds of making decent money.

BeerCo's planned IPO has been delayed for >3years so far, with constant on-offs since 2021. I think this signals 2 things - (1) ThaiBev is not desperate to sell because they are not able to get the right price (or volume). (2) The right price might remain elusive. The golden era of animal spirits for beer consolidation/bidding wars had already passed since the early part of 2010s, and it is probably not coming back any time soon.

Maintaining a listed company is definitely not cheap for commoners like us But comparatively to the amount of interest Chaoren pays on ThaiBev's loans, that's small change. I am not sure why he may want a listing to be kept, but as you mentioned he has his fair share of advisors on what intelligent path to take. In an alternate scenario where I had been appointed as one (of his advisors), I would surely remind him that it is infinitely more expensive to do a successful delisting of F&N at fair price (ie. nearby to the swap price) compared to paying the costs of listing/compliance.

Finally, a listing gives optionality and you had mentioned a few. A clever person knows that in life, one needs to keep all options open, isn't it? Only when the optionality gets too limited, will then one decide to give up paying the opportunity costs.