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SABMiller China Venture to Pay $851 Million for Brewery
SABMiller China Venture to Pay $851 Million for Brewery

SABMiller China Venture to Pay $851 Million for Brewery


Bloomberg - Feb 18th, 10:39

SABMiller Plc’s joint venture in China agreed to pay HK$6.6 billion ($851 million) for beermaking assets from Kingway Brewery Holdings Ltd. to boost its share of the world’s biggest market for the beverage.  

China Resources Snow Breweries Ltd., which SABMiller co- owns with government-backed China Resources Enterprise Ltd., will acquire Kingway’s production and sales business, including seven breweries, it said yesterday in a statement. Kingway shares rose to the highest in almost six years.

“Kingway is currently loss-making, but we believe we made a right decision,” Chen Lang, chairman of China Resources Enterprise, told reporters in Hong Kong. “About 50 of our 80 breweries came through acquisitions. We have a track record of turning things around in three to five years.”

China Resources, the maker of Snow beer, struck a deal after Kingway stumbled in an earlier attempt to sell the business. The company had drawn an offer from Anheuser-Busch InBev NV last year, and Beijing Yanjing Brewery Co. was near an agreement to buy the assets in April, people with knowledge of the matter said at the time.

Kingway advanced 7 percent to close at HK$3.51, after jumping as much as 20 percent in early trading in Hong Kong. China Resources Enterprise fell 3 percent to HK$26.10. The benchmark Hang Seng Index rose 0.5 percent.

Tsingtao Brewery

Guangdong-based Kingway put the assets up for sale as it lost market share in its home province to competitors including Tsingtao Brewery Co. The company said last week it expects to report a loss for the second half of 2012, after recording losses of HK$101.6 million in the first six months.

The transaction price includes about $33 million worth of loans.

The purchase by China Resources “is an important strategic transaction,” analysts at Barclays led by Simon Hales said in a note. “SAB’s market-leading position in China continues to offer investor upside optionality in the long-run.”

SABMiller shares rose as much as 1.6 percent yesterday before closing at a record, giving the world’s second-biggest brewer a market value of almost 51 billion pounds ($80 billion).

Potential Value

If the joint venture is able to increase earnings per hectoliter of beer in China to just less than half of group earnings by that measure, it would be worth 160 pence per SABMiller share, the Barclays analysts said. About half the price of the Kingway purchase is a premium versus building new breweries, reflecting the potential value of the beer brand and Kingway’s “strong regional route-to-market capabilities,” they said.

Brewers are seeking to expand in faster-growing emerging markets as sluggish economies and government cost-cutting measures offset improvements in the beer market in Europe. AB InBev, the world’s biggest beermaker, agreed to buy the rest of Mexico’s Grupo Modelo SAB last year for $20.1 billion in the second-biggest beer deal of the last decade, while Heineken NV took control of its Asian joint venture for S$5.6 billion ($4.5 billion.)

“The Kingway acquisition appears to be rather expensive, considering Kingway’s assets and production capacity,” Anson Chan, a Hong Kong-based analyst at KGI Asia Ltd., said by phone. “It will not change the competition landscape in Guangdong, as Snow is likely to remain the number three brand in the region, lagging Tsingtao and Zhujiang Beer. I also don’t see much cost- saving synergy in the deal.”

China Resources’ Snow, the No. 1 beer brand in China, had a 22 percent market share last year, according to Euromonitor International, a London-based research firm. The transaction will add 14.5 million hectoliters of beer production capacity, SABMiller said.  

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