BEST M&A
Heineken’s SGD7.35 billion (US$5.86 billion) acquisition of Asia Pacific Breweries
Adviser to Heineken: Citi, Credit Suisse
Adviser to Fraser & Neave: Goldman Sachs, J.P. Morgan
One of the most important ramifications of Asiamoney’s M&A deal of the year for 2012 is that it could yield a larger transaction in 2013. Fraser & Neave (F&N), the seller of a 58.1% stake in Asia Pacific Breweries (APB) via directly owned shares and its stake in a joint-venture with buyer Heineken, is itself a likely candidate for acquisition.
Heineken had long had an interest in APB, which is the brewer of Tiger Beer among other brands. The Dutch company has also come under increasing pressure from its shareholders to expand itself into growing markets, and outright purchasing APB looked a good way to do that.
On July 20 Heineken announced that it had made an offer for the 7.26% of APB shares owned by consumer conglomerate F&N and the 64.8% owned by Asia Pacific Investment, a 50:50 joint-venture between Heineken and F&N, at SGD50 per share, followed by a mandatory offer for the other APB shares. APB’s directors recommended that shareholders accept the offer.
But Thai Beverage and Kindest Place Group were not prepared to let Heineken get its way without a fight. Both companies are affiliated with Thai billionaire Charoen Sirivadhanabhakdi, with ThaiBev holding a 24% stake in F&N and Kindest Place owning 8.6% of APB.
It was the latter that made an unsolicited SGD55 a share offer for F&N’s share in the beverage company. That offer forced Heineken to step up its offer to SGD53 a share, to the delight of Fraser & Neave and – ironically – the companies it was battling.
The offer was formally accepted on November 15, and Heineken was as of writing bidding for the shares it didn’t own in APB. The acquisition may have cost more than it wanted but it gives it exactly the entrance it needed into growth markets. Meanwhile Thai Beverage has alongside Sirivadhanabhakdi-linked special purpose vehicle TCC Assets built its share in F&N to around 30.37%. It is now bidding for the rest of the Singapore-based conglomerate in a potential US$9.19 billion deal.
The acquisition of APB has shown other cash-rich European consumer companies stuck in a turgid economic environment that expansion opportunities exist in Asia. Several M&A bankers believe that similar investments into Asia will occur in 2013.
BEST IPO
IHH Healthcare's MYR6.73 billion (US$2.1 billion) IPO
Joint global coordinators: Bank of America-Merrill Lynch CIMB, Deutsche Bank
Joint bookrunners: Credit Suisse, DBS, Goldman Sachs
The two contenders for the best IPO over the past year both hailed from Malaysia, which was an unusually busy market for privatisations in 2012 ahead of the country’s election in early 2013.
Additionally, the MYR10.43 billion IPO conducted by Felda Global Ventures Holdings in June was Asia’s largest listing in 2012, while IHH Healthcare’s MYR6.73 billion IPO a month later was the second-biggest.
We plumped for IHH’s deal, mostly because of its aftermarket performance. Felda’s stock outperformed IHH’s on the break, with the former soaring 20% when it began trading. But IHH’s shares have continued to rise to MYR3.29 on December 10, more than 15% higher than the initial sale. In stark contrast Felda’s stock has slipped downwards, almost dropping back to its IPO price of MYR4.55. IHH’s Singapore-listed shares are also trading higher.
IHH possesses some good growth potential. It is Asia’s largest hospital operator in a market that is experiencing rapid growth as an expanding middle class in the emerging markets spends more on quality health care. The company is owned by Malaysian government’s investment arm Khazanah Nasional and operates hospitals and clinics in Malaysia, China, Singapore, Hong Kong, India and Turkey.
These factors accounted for the reason why a plethora of cornerstone investors flocked to the deal despite concern of foreign-exchange risk on IHH’s Turkey operations and the fact that its Singapore hospital is not operating yet. The institutional tranche was one of the most oversubscribed deals in the past three years in Asia, ending up 130 times oversubscribed. A huge array of long only, buy-and-hold accounts as well as sovereign wealth funds such as the Kuwait Investment Authority and the Government of Singapore Investment Corp. accounted for 58% of the deal.
That allowed IHH to price its shares at MYR2.80, near the top end of the range of the MYR2.67-MYR2.85 guidance. It was priced at 33 times next year’s expected earnings, representing a 52% premium over comparable deals.
Malaysia’s IPO market is unlikely to enjoy quite as spectacular a rate of IPO flow in 2013, but the success of IHH’s dual listing may encourage more issuers from the country to consider initial share sales in the future.
BEST EQUITY OFFERING
AIG’s HKD15.68 billion (US$2 billion) sale of AIA shares
Joint global coordinators and joint bookrunners: Goldman Sachs, Deutsche Bank
Joint bookrunners: Bank of America-Merrill Lynch, Barclays, Citi, HSBC, J.P. Morgan, Morgan Stanley, UBS
2012’s second sell down of AIA shares by former parent AIG Group helped to save the first, the year’s most highly anticipated block trade which flopped in aftermarket trade.
AIG’s plan to sell its stake in Asian insurance giant AIA was a breath of fresh air for equity investors who were bracing themselves for a boring 2012. The American insurance firm was selling down its shares in the successful business to repay part of the record US$182 billion it received from the US Treasury at the height of the global financial crisis.
But AIG’s US$6 billion sale of AIA shares in March, which was the biggest block trade of the year, led the company’s share price to drop more than 8% after it was concluded and precipitated a three month tumble in AIA’s stock valuation.
It was the anticipation of the next sell down in September that began to lift the share price, but that also added to the pressure to get the second sale right.
The strategy of the sizeable array of bookrunners was to maximise demand. That was achieved by surprising investors by offering only a third of AIG’s remaining holding in AIA, or 591.9 million shares. The books for the new sales were opened after the market closed in Hong Kong on September 6 and were covered within an hour. Bankers say investor demand was so strong that even some global long-only accounts were squeezed out.
It allowed AIG to sell the block of AIA shares at HKD26.50 apiece, a 0.8% premium to where they had closed that day. It was the first time that a Hong Kong block sale of shares had ever been priced at a premium, and it allowed AIG to lock in a price near the top end of initial guidance of HKD25.75-HKD26.75.
That helped boost AIA’s share valuation by 6.8% the next day. The company’s stock is now trading 30% higher year to date, and is one of the best performing companies on the Hang Seng Index.
Following the second sell down AIG still owns 13.7% in the Asian insurer. The only concern that remains is whether this overhang will weigh down on AIA’s share performance in 2013.
But AIG’s unwinding grip has been a boon for AIA, whose links to the US insurer had initially been a concern for investors. It has also maintained a stable financial profile – it has US$3 billion in cash and holds an enviable ‘AA’ credit rating. The firm is also eyeing acquisition targets in the region as European rivals retreat, leaving much upside to growing market share in the future.
BEST EQUITY-LINKED OFFERING
Hong Kong Exchanges and Clearing US$500 million convertible notes due 2017
Joint bookrunners: Deutsche Bank, HSBC, UBS
A record year in the debt capital markets nearly overshadowed the attraction of financing through equity-linked securities. The burning demand for bonds left the equity-linked market peppered only with a handful of lesser-known names.
But Hong Kong Exchanges and Clearing’s (HKEx) debut convertible bond issue was able to break the lull with a US$500 million deal. The transaction was intended to fund its high-profile, cross-border acquisition of the London Metals Exchange (LME), and it ended up being the largest Asia-based convertible transaction to be sold to international investors in 2012.
The appeal of the deal is its win-win nature for both issuer and investors. HKEx locked in the highest conversion premium of the year at 34.6%, achieving pricing at the high end of the range of 30%-37.5% given to investors, due to the fact that it was a highly regarded credit that can be easily hedged.
Investors in turn got a chance to buy a highly liquid issue that is partially owned by the Hong Kong government, adding to the rarity and strong stance of the credit. They also received an extra layer of protection through an option that will force the HKEx to call back the convertibles within six months of the issue if the UK’s Financial Services Authority does not approve its acquisition of the LME. This feature was the first to be included in Asia.
The dynamics of the deal resulted in books getting covered within an hour and getting oversubscribed three times. HKEx’s bonds are trading several basis points above par. Meanwhile its stock valuation fell around 4% to HKD114.5 in the subsequent days of the deal before rebounding to HKD123.2 at the time of press.
The advantages of picking a convertible issue over other types of financing such as a common stock offering is that it can pre-fund before the acquisition is approved, and can prevent a dilution of shares. With Asian appetite for cross-border mergers and acquisitions set to increase in the following years, the HKEx deal may very well be replicated.