SABMiller suffers setback in China

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SABMiller has suffered a setback in China after its plans to buy a stake in the country’s eighth-biggest brewer were scuppered by the controlling shareholder.

The move sets the stage for a bigger tussle for Kingway Brewery Holdings, one of the few sizeable assets up for grabs in China’s fast-growing beer market. Alternatively, it could see provincial government controlling shareholders have a bigger say in determining how assets are parcelled out, analysts said.
SABMiller’s Chinese joint venture, CRE Snow, offered to pay Rmb1.1bn ($168m) for a 21.37 per cent stake in Kingway. The stake was put on the block by a Heineken joint venture in a move interpreted by analysts as the Dutch brewer giving up after failing to win control of the brewer.
But on Monday Kingway said that controlling shareholder GDH, a Guangdong provincial government holding company, had exercised its right to buy the 21.37 per cent stake, blocking CRE.
“CRE does not have a lot down in Guangdong province, so it would have been an entry point into a new area,” said Ian Shackleton, drinks analyst at Nomura. He added, however, that it was not “a huge miss”. SABMiller declined to comment.
Mr Shackleton reckoned GDH, which will now have a 74 per cent stake in Kingway, may sit on the stake. Others pointed to the “not low-ball price it is paying” – an implied $41 per hectolitre, compared with an estimated $25 per hectolitre for new build – and said this suggested it would aim to sell on the entire stake at a still higher price.
Chinese brewers, although typically bought simply for their capacity rather than brands, have attracted some strong multiples over the years. Last year Carlsberg paid an estimated $117 per hectolitre for a 5 per cent stake in Xinjiang Wusu.
News of the stymied deal in China came as activity is gearing up in Brazil, where family owners of Schincariol, the country’s privately run number two brewer, are mulling a sale.
Any sale would pit SABMiller against Heineken, which has operations in Brazil through Mexico’s Femsa.
The Brazilian market is dominated by Anheuser-Busch InBev, which has a market share in excess of 70 per cent. Jason DeRise, analyst at UBS, said an acquisition would be attractive for Heineken.
“It would help improve the Femsa deal dynamics because the Brazilian part of that deal is in a poor position and profitability is just above break-even,” he said. Bolting together Heineken’s sub-10 per cent market share with Schincariol’s 11-12 per cent “would fix the profitability.”
SABMiller, which would have less direct synergies, would find it harder to justify a big price tag, analysts said. However, Mr DeRise said any deal could prompt Petropolis, the number three brewer, to sell out too, giving a foreign brewer the opportunity to roll up a roughly 20 per cent stake in the fast-growing market.
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