The Shoeshine Column: Watch for extra DB takeover froth

Friday 10th March 2000

The tone of Asia Pacific Breweries' announcements about its takeover bid for DB Group is proving more interesting than the content.

APB, which owns 58.4% of DB Group, launched a bid for the rest of the brewer at $2.80 a share on January 28. The Singapore-based brewing group is itself controlled by Dutch brewing giant Heineken.

Last Wednesday APB revealed it had raised its stake in DB Group to 60%.

"The immediate and positive response from DB Group shareholders confirms [APB's] belief that the unconditional offer of $2.80 is well priced," it said. Siep Hiemstra, APB regional director for South East Asia and Oceania, added his view that "We are happy with the quick response, which strengthens our confidence of success."

This announcement, which borders on gloating, doesn't appear to coincide with reality.

Moving from 58.4% to 60% required the acceptance for 1.6 million shares, which APB said came from 640 DB shareholders. That equates to 2500 shares per accepting shareholder or an average of 23 acceptances per working day - not a lot for a bid that has been open for six weeks. It means the company has done little more so far than mop up some small individual shareholders.

This leads Shoeshine to wonder if the triumphal announcement, which could easily have been handled in a straightforward substantial securityholder notice, is a ploy to persuade others there is an acceptance bandwagon on to which investors should be jumping.

Some mum and dad investors appear to have fallen for that - APB said on Tuesday it was up to a 62.2% stake - but none of the institutions or larger shareholders, who really count if APB is to reach a critical mass of acceptances, are going to fall for that.

Another reason for wanting to persuade investors to hurry up and accept is to put the lid on any hope a higher offer is coming. APB has been adamant its $2.80 per share offer will not be raised, although it has already begun hinting its March 27 offer deadline may be extended.

Unfortunately for APB, few believe the offer won't be sweetened.

Almost all the takeovers in New Zealand in the past few years have needed higher offers than the opening bid to succeed. A separate development is the increase in opposition by investors sick of seeing companies disappearing from our already miniscule market.

APB's cause has not been helped by the independent appraisal report by PricewaterhouseCoopers, that valued DB Group at $3.19 - $3.61 and led independent directors to reject the offer.

This valuation is clearly ludicrous and is not the first time an independent report has been off the mark. Investors may care to note the accounting firm based its findings on internal business plans that set the way for the brewing division over the next 10 years and wine division Corbans for 15 years.

Shoeshine prefers the view of an executive recruitment chappie with whom he had a discussion recently. His comment was that anybody who came up with a 10-year plan in this era of massive change should be sacked. Most businesses were finding it difficult to figure out where they were going to be in six months, thanks to developments in e-commerce and globalisation, he said.

Take this into consideration and it is hard to conclude the fair price of DB Group is any more than $3 a share. APB presumably knows this, which is why it put its offer in at $2.80. Nobody makes his best offer first. If it gets lucky and buys the rest of the group for that price, APB will break out the bubbly (can you get magnums of Heineken?). If not, it will almost certainly bump up its offer to $3. This will make shareholders feel good, increase the chance of success and still give the bidder a reasonable deal.

Conjecture abounds as to what APB will do once it takes DB Group private. It is likely wine division Corbans will go on the block. Heineken has not shown an interest in wine in any of the other 55 markets in which it is active and it seems hard to believe it will want to start here.

It makes perfect sense for APB to sell Corbans to the highest bidder, probably one of the Australian wine companies that sniff regularly around the New Zealand industry for assets. Both DB and Montana (formerly Corporate Investments) have had approaches but have so far resisted the temptation to sell.

Perhaps APB is waiting for the benefit of the low kiwi dollar to have its inevitable effect on Corban's sales and profitability, which would bump up its valuation. It may also reason an auction of a fully separate entity (rather than as an arm of a brewing group) may bring in more than a cosy sale to the first bidder who knocks on the door.

The bid itself cannot have been a surprise for many. Rumours had been flying for some time and Heineken has been dipping into its war chest regularly in recent months. So far this year deals have been completed in Spain and Eastern Europe, while Heineken is in the throes of bidding around $6 billion for Britain's Bass brewing group.

Shoeshine is not prone to idle speculation (well, maybe sometimes) but he is willing to bet APB extends its bid beyond the March 27 deadline, probably by a month. Before that second date is up it will magnanimously push its offer up to $3. Within microseconds, the institutions will accept and investors will have to start hunting among the New Zealand market's slim offerings for somewhere else to put their capital.

Comments from our readers

No comments yet