* Kirin looking to buy F&N's food and beverage business from Overseas Union-led group
* Overseas Union group withdraws from battle with Thais to take over Singapore's F&N
* Kirin could renew talks with Thais or sell existing stake in F&N - sources
By Denny Thomas and Saeed Azhar
HONG KONG/SINGAPORE, Jan 23 Kirin Holdings Co Ltd's go-abroad strategy to counter slowing growth at home hit a snag when the Japanese brewer lost its chance to boost its share in the world's fastest-growing food and beverage market and increase sales by over $1 billion.
A group led by Indonesian tycoon Stephen Riady would have sold Singapore-listed Fraser and Neave Ltd's (F&N) food and beverage business to Kirin as promised, had the consortium not thrown in the towel and pulled out of its fight with Thai beer baron Charoen Sirivadhanabhakdi for F&N.
As it is, Kirin's exposure in Southeast Asia diminished when F&N, which the Japanese brewer partly owns, sold its stake in the maker of Tiger Beer to Heineken NV in September. Kirin, Asia's biggest listed brewer and food and beverage company, now has to consider its moves even more strategically.
Kirin is left with two options - either renew talks with Charoen for a strategic partnership to tap Southeast Asia's food and beverage market or exit F&N with a handsome 47 percent investment gain that could used to pay down debt, reward shareholders with a special dividend or acquire other assets, said sources familiar with the matter. They declined to be named as they were not authorised to speak to the media on the matter.
On Monday, the group led by Riady's Overseas Union Enterprise Ltd bowed out of a bidding war with the Thais when it declined to raise its takeover bid for F&N. Last week, Charoen ramped up his offer to buy F&N shares that he does not already hold, valuing the Singapore conglomerate at around $11 billion. Charoen currently owns 42.5 percent of F&N through Thai Beverage PCL and TCC Assets Ltd.
Kirin, which owns around 14.8 percent of F&N after investing in the Singapore company in 2010, has not decided on its next move.
"We are aware of the news, but no decisions have been made in regards to our holdings," said Hajime Kawasaki, a Kirin spokesman.
Had the Overseas Union consortium succeeded, it would have sold F&N's food and soft beverage business to Kirin for S$2.7 billion ($2.2 billion). That would be a touch below the midpoint of JP Morgan's S$1.9 billion-to-S$3.8 billion valuation of the business.
Southeast Asia's expanding food and beverage market is key to countering Kirin's sluggish growth back home. The region's food and beverage sector may expand to $134.25 billion by 2016 from $99.5 billion last year, Euromonitor estimates show.
F&N raked in S$1.8 billion in food and beverage revenue in the year ended September 2012.
TALKING TO THE THAIS
"They can still knock at the doors of the Thais to see if something can be done. Obviously now it will be at a premium to what the Thais had paid," said one M&A banker, who advises clients on consumer deals.
When Kirin invested in F&N for around S$1.34 billion in 2010, the idea was to develop a leading food and beverage business in Asia. Nearly three years on, Kirin is sitting on a S$700 million paper profit, excluding any dividends, on that investment.
"Obviously, the strategic rationale for having bought in the first place hasn't played out," the banker said.
But it's not all downhill for Kirin from here on, as there is still scope for the Japanese company and Charoen to work together.
So far the two sides haven't talked about this option, one of the sources familiar with the matter said.
"There is a lot of synergies between the two groups. That is an option, I wouldn't rule that out," said the source. "They (Kirin) have the expertise of premier branding and all of that stuff. Charoen does not yet."
Officials at Thai Beverage and TCC Assets declined to comment.
The Thai billionaire is yet to show his hand on what he intends to do after gaining control of F&N. While his interest in building a property empire is well known, some doubt whether he has the same passion for growing the food and beverage business. And that is where Kirin can come back into the game.
"I have no doubt they see value of owning F&N's food and beverage business. But whether they are totally wedded to it or whether there is a price at which they are willing to let go is an interesting question," the source added.
Kirin, the maker of Ichiban Shibori beer and the Japanese distributor of Anheuser-Busch InBev's Budweiser and Heineken, has said it aims to expand in Thailand and Vietnam to boost its earnings. The brewer posted overall revenue of around $23 billion in the year ended March 2012.
Kirin hired Deutsche Bank as its financial adviser soon after F&N became an M&A target in July last year.
Among Japan's brewers and food and beverage companies, Kirin has been the most acquisitive, having done $17.3 billion of deals to date.
Kirin's first big overseas venture was in 1998, when it acquired a stake in Australia's Lion Nathan, which it finally took full control of and eventually delisted from the Australian market in 2009. Since then, it purchased a 48 percent stake in the Philippines' San Miguel Brewery, a unit of San Miguel Corp . ($1 = 1.2283 Singapore dollars) (Additional reporting by James Topham in TOKYO, Eveline Danubrata in SINGAPORE and Khettiya Jittapong in BANGKOK; Editing by Ryan Woo)