Thai Beverage Public Co (ThaiBev) and TCC Assets, which are  seeking control over Fraser & Neave (F&N), have declared that it will block a proposed capital reduction for the Singapore conglomerate. The proposal by F&N, in which the Thais hold a 30.7 per cent stake, is to pay shareholders $8.50 per cancelled share for culling one out of every three shares held. The capital reduction needed 75 per cent approval to pass. The capital reduction needed 75 per cent approval to pass. The capital reduction was F&N's plan to return to shareholders $4 billion of the $5.6 billion that it would get from selling its interests in APB to Dutch brewer Heineken.

With no other concrete plan on the table for F&N to return proceeds from a proposed disposal of Asia Paci'c Breweries (APB) (S$53.0, Unrated), the move could push some F&N minorities toward accepting the Thais' general o'er. Without the capital reduction, F&N shareholders who wanted to stay invested in the company will have to wait, with no certainty about how and when the Thai o'er will be over.

In our view, the Thai consortium's move to block F&N's (S$8.90,  Unrated)  proposed capital reduction clearly underscores its intention to retain the discretion over the use of F&N's cash balance, should it succeed in its attempt of securing majority control in F&N. After all, the bene't of gaining instant access to the high'growth regional soft drinks markets was the key motivation behind the Thai consortium's acquisition, and it could leverage on F&N's existing cash balance to support its regional push. The importance of retaining discretion over F&N's cash uses is further accentuated in light of the impending expiration of its subsidiary Serm Suk's bottling agreement with PepsiCo in November 2012. Given the loss of a powerhouse brand such as PepsiCo, ThaiBev (S$0.425, Unrated) will have to invest in distribution and marketing initiatives in order to truly maximise the potential of its acquired F&N brands.

Source: AmFraser