Heineken Takes a Keg Stand in Beer Wars With $4.1B Tiger Bid (Update 1)

Updated to reflect additional analyst comments and industry data

NEW YORK ( TheStreet) -- Heineken is the newest global beer giant to enter the M&A market, amid a high stakes land grab for brewing assets in fast-growing emerging markets as drinkers in North America and Western Europe cut back on the suds.

On Friday, Heineken offered to buy the remaining shares of Singapore-based Asia Pacific Brewers, the maker of Tiger Beer, in a move to fend off a rival bid from Asian drinks conglomerate Thai Beverage. Already, Heineken owns a 42% stake in Asia Pacific Brewers, a stake that dates back to 1931.

With full control of APB, Heineken would join beer giants like Anheuser-Busch InBev ( BUD), Molson Coors ( TAP) and SABMiller ( SBMRY) in cutting multi-billion dollar deals for brewers in emerging markets like Asia, Latin America and Eastern Europe. The beer sector merger wave also comes at a time when Euromonitor estimates that beer consumption in North America and Western Europe will stall in coming years.

''If agreed, the offer will strengthen Heineken's platform for growth in some of the world's most exciting and dynamic economies with fast-growing populations,'' Heineken said in a statement on Friday. The move would also give Amsterdam-based Heineken, "'direct access to a number of important markets, including Cambodia, China, Indonesia, Malaysia, New Zealand, Papua New Guinea, Singapore, Thailand and Vietnam," the company added.

Heineken, which accounts for just under 10% of the global beer market, has a smaller emerging markets presence than peers ABInbev and SABMiller. Bloomberg Industries analysts also note that were Heineken's bid to be accepted, it would leapfrog SABMiller as the world's second largest brewer.

The beer maker's $4.1 billion bid for the remaining shares of APB comes at a near-20% premium to the brewer's share price in the Singapore market, and tops a bid made by Thai Beverage earlier in the week. Both brewers are bidding on a 40% stake owned by Singapore-based food & beverage, property and publishing conglomerate Fraser & Neave. If its bid is accepted, Heineken would take control of APB, a company it's been involved with since the early 1930s.

Asia Pacific Breweries operates 30 breweries across Asia, in counties like Mongolia, and Papua New Guinea. The company owns popular regional brands like Tiger Beer and Bintang lager.

Heineken's bid may not be the end of the battle, though.

"In our view, this is far from certain," wrote Berenberg Bank analyst Phillip Morrisey, in a note to clients. " The strategic/regional ambitions of Thai Beverage and perhaps more so Kirin, as well as the apparent historic reluctance of F&N to exit APB, suggest a deal may prove difficult to complete," Morrisey adds.

Heineken's offer is "a very full price in our view and may still need to go higher," wrote Jefferies analyst Dirk van Vlaanderen in a note to clients. A bidding war would underscore the thirst for scarce growth assets in emerging markets among beer giants. Still, a successful bid could be positive for Heineken as it takes on ABInBev and SABMiller.

"Strategically we like the deal given the dynamic growth credentials of the Asia Pacific region and that Heineken knows the business well after 80+ years of collaboration," wrote Van Vlaanderen.

However, Davy Research analysts calculate the deal at a high multiple to Asia Pacific Breweries' earnings, estimating the offer at 19 times APB's trailing earnings before interest taxes depreciation and amortization (EBITDA). They also argue that the premium price could reflect APB's importance to Heineken. "While this is certainly at the expensive end of recent brewing acquisitions, APB is a high-growth company and is of significant strategic importance for Heineken," the analysts note.

In late June, Anheuser-Busch InBev ( BUD) paid $20.1 billion for its remaining stake in Grupo Modelo, the maker of Corona beer, in a move that further pushes the beer giant into fast growing Central American markets.

In the deal, Anheuser-Busch InBev is tapping beer consumption in Central America and the export of its brands like Corona to international markets. Already, Corona is the most imported beer in the United States and Anheuser-Busch InBev's beer presence stretches from the U.S. to Latin America, Europe and beyond.

Earlier in 2012, Anheuser-Busch InBev bought Cerveceria Nacional Dominicana, the maker of Presidente beer and the largest brewer in the Dominican Republic for $1.24 billion, boosting its beer brands in the region.

After both acquisitions, Anheuser-Busch InBev will own Corona, Pacifico, Brahma, Presidente, Quilmes, and Modelo branded beers in Latin America, putting it in stiff regional competition with Heineken, which owns Dos Equis, Tecate and Sol beers.

AB InBev effectively gained a non- controlling 50% stake in Modelo when InBev bought Anheuser-Busch in 2008 for $52 billion, in the biggest-ever beer merger.

To combat declining sales in key U.S. and Canadian beer markets Molson Coors ( TAP) recently acquired Czech Republic-based StarBev, the brewer of Staropramen beer, in a $3.5 billion deal that will push the company into heavy-drinking eastern European emerging economies.

In late 2011, SABMiller ( SAB), the world's second-biggest brewer by volume, bought Australia's Fosters Group for about $10.5 billion.

For more on investing in beer and alcohol, see the top 5 beverage stocks. See 5 deal ready stocks loved by hedge funds for more on potential M&A targets.

For a breakdown by Euromonitor of beer growth markets, see the fastest-growing drunk nations.

-- Written by Antoine Gara in New York

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