SABMiller China Venture to Pay $851 Million for Brewery

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SABMiller Plc (SAB)’s joint venture in China agreed to pay HK$6.6 billion ($851 million) for beermaking assets from Kingway (124) 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. (291), will acquire Kingway’s production and sales business, including seven breweries, according to a statement today. The transaction price includes about $33 million worth of loans.
“Kingway is currently loss-making, but we believe we made a right decision,” Chen Lang, chairman of China Resources Enterprise, said at a press conference 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.”
Kingway, based in Guangdong, put the assets for sale in January last year as it lost market share in its home province to competitors including Tsingtao Brewery Co. Kingway 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 stock closed 1.5 percent lower at HK$3.28 today, giving the company a market value of HK$5.61 billion.
SABMiller’s shares rose as much as 1.6 percent to the highest price on record and were up 1.4 percent at 12:15 p.m. in London, giving the world’s second-biggest brewer a market value of about 51 billion pounds ($80.4 billion).
‘Rather Expensive’
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 (ABI) 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.
“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,” Chan said.
Brewers like SABMiller 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 brewer, 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 (HEIA) took control of its Asian joint venture for S$5.6 billion ($4.5 billion.)
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. Shares of China Resources fell 1.1 percent in Hong Kong before the announcement.
The transaction will add 14.5 million hectoliters of beer production capacity, SABMiller said today. The company’s venture with China Resources operates about 80 breweries in the country, it says on its website.