Expanding in the ASEAN might make better sense.

Analysts are wary over Fraser and Neave’s involvement in the EUR3 billion sale of premium European beer brands Peroni and Grolsch.

A report by DBS said that FNN’s interest in Peroni and Grolsch is surprising, as analysts had the impression that the group will simply focus on expanding its presence in the ASEAN.

“We are a little mixed on this development at this stage. On the surprise factor, we had the impression that the focus of FNN/ThaiBev would be more on ASEAN region. That said, we believe the intention is to leverage on the Peroni and Grolsch European brands to launch into this region if it was successful,” DBS said.

The report added that FNN might be looking to claw back its beer profits, which vanished after the divestment of its stake in Myanmar Brewery Limited.

“We believe the intention was to leverage on FNN for international expansion, while ThaiBev’s focus remains within Thailand. Although the ThaiBev/ FNN group has a presence in the region, an established beer distribution network is currently only in Thailand (Chang), coupled with export presence in Singapore and Myanmar. It remains to be seen if FNN will be able to significantly ramp up the introduction of the brands within short span of time in the region,” said DBS.

Despite its misgivings, DBS believes that Peroni and Grolsch’s price tag is not excessively high. If the bid pushes through, FNN is likely to fund the acquisition using a mix of internal cash, debt and equity.

“Based on our initial estimates and assuming a price tag of EUR2.5bn (S$3.75bn), we believe FNN is likely to rely on a mix of funding, about 53% debt (S$2bn), 25% equity (S$950m) and 21% cash (S$800m). This is likely to bring FNN’s net gearing to 0.6x (post assumed equity issuance) with a Debt/ EBITDA of under 4x,” said DBS.