When a major shareholder raises its stake in a subsidiary from “very little” to “just a little more”, few investors would raise eyebrows.
But in this case, we’re talking about Fraser & Neave raising its direct stake in Asia Pacific Breweries. Twice. And Heineken is now also raising its direct stake. And to top it off, the two already own 65.1% of APB through their 50:50-owned Asia Pacific Investment Pte Ltd.
What is going on?!
On July 14, F&N announced it had raised its direct stake in its subsidiary to about 5%, after buying 631,000 shares in the open market for S$6.8 mln.
On July 25 it announced it had raised its stake again. This time it had bought 1,169,024 shares in the open market for S$12.6 mln, giving it a stake of 5.5%.
Enter Heineken. After a query from the SGX and a trading halt today, the Dutch brewing giant announced it had bought 609,890 shares in a series of transactions.
It didn’t disclose the price, but says it now owns 9.53% of APB.
After surging 30% on Thursday (July 27), it dropped 10.6% a day later. The one analyst quoted by Reuters has an outperform call on the stock with a price target of S$11.65.
Other shareholders are Great Eastern Holdings (4.59%) and its parent company OCBC Bank (3.04%).
It could be that both these shareholders are keen on Asia Pacific Breweries because of its prospects. It recently announced expansion plans in India, Vietnam and Laos.
But Fraser & Neave’s repeated statement that it is its intention “that APBL remains a listed company” is rather curious.
It is as though it wants to head off any speculation that F&N is going for a takeover, or a delisting of some sort.
Given the shrinking public float of the stock, one wonders how this can be so.
If you add the 65.1% F&N and Heineken own jointly, to the 15% they own individually, they have already reduced the freefloat to 20%. The minimum allowed freefloat of mainboard-listed stocks is 25%.
So how?
My personal opinion is that there are two possible scenarios:

1. Asia Pacific Breweries is about to issue shares and the two main shareholders want to ensure they retain substantial positions. Given APB’s recent expansion plans, it is not inconceivable that the company wants to raise cash. After all, the total debt to total equity ratio is around 8 times as at the last interim report.

But I think this is the less likely scenario. If the two main shareholders want to retain substantial positions ahead of a cash call, and they’re still friends, why not buy more shares through their 50:50 joint venture? Or take part in the cash call, after it has been announced?

2. APB is about to become the subject of a takeover tussle. The two main shareholders, tied together at one hand through their joint venture, have knives in their other hands with which to fight over the remaining, listed shares.

But I also have doubts about this scenario, too. Why buy the shares piecemeal and raise the attention of the market, and the other shareholder? A swoop on the market may be a better way to go, although with average daily trading volume around 145,000 shares, there may not be enough liquidity to make this happen. Also, an acrymonious takeover battle over the 35% not owned by their joint venture would make their working relationship difficult at best.

Whatever the reason for the recent purchases, one thing is clear. There is something brewing over APB.