E-Malt.com News article: 1923

Scottish & Newcastle, the world's sixth-largest brewer, will pay 36 million pounds for a fifth of China's number three brewer, the latest foreign brewer hoping to profit from growth in the world's top beer market, Reuters said. Scottish & Newcastle confirmed on December 12 that it is in discussions with Chongqing Breweries (CBG) in China. S&N has had a strong commercial association with Chongqing for ten years, and it is seeking to deepen this relationship and strengthen further the CBG business, the company said in a statement. “These discussions consist of several elements, including the possible injection of new assets and S&N making a minority equity investment in CBG. Negotiations are still ongoing and no definitive agreement has been concluded. S&N will update the market as and when it is appropriate.”

S&N, supplier of Newcastle Brown Ale and Kronenbourg, might be paying a high price for a rare foray into Asia for the mainly Europe-focused company, analysts said on Friday. Britain's largest brewer is forking out more than 525 million yuan (36 million pounds), 10.50 yuan a share, for 19.51 percent of Chongqing Brewery. This is more than four times the local company's net asset value, according to Reuters Securities 3000. "We're not surprised by the deal, but the price paid is too high. Going by previous transactions, the industry average should be about 1.5 times," Merrill Lynch's Grace Mak said.

Chongqing Brewery's Shanghai-listed yuan-denominated A shares -- open to Chinese and select foreign investors -- rose almost its 10 percent daily limit to 15.55 yuan earlier in the day before profit-taking forced it down to close at 14.12 yuan at noon.

China, a nascent annual market of 237 million hectolitres that's growing 6% a year, has long been walled off to foreign brands mostly unheard-of outside the major cities, and where a 640-ml bottle can go for just above one yuan.

As a latecomer, S&N might have been forced to pay extra to lock-in one of the few gems in a highly fragmented industry that suffers overcapacity and margin-gutting competition.

It signed a pact on Thursday with Chongqing Brewery's parent, the Chongqing Brewery (Group), to pick up 50 million of the listed firm's non-publicly traded state-owned shares.

Rivals such as Anheuser-Busch and SABMiller have already secured equity stakes. "It's not how much you pay, but what you get in return," Chongqing Brewery's securities manager Deng Wei told Reuters. "S&N will have a say in managing our operations and help us expand, with the eventual aim of marketing our beer in Europe," he said from his base in the booming southwestern city.

The deal, awaiting government approval, would make S&N the second-largest shareholder behind Chongqing's parent, which holds a 34.55 percent stake, the company said in a statement. Chongqing brewery has a market capitalisation of $420 million, according to Securities 3000. It reported assets of 1.58 billion yuan at the end of September. It ranks in market cap only behind industry leader Tsingtao Brewery and Yanjing Brewery -- another acquisition target often cited by industry sources. Foreign brewers keen to escape saturated home markets are piling back into an arena that has claimed such names as Carlsberg Breweries and Foster's Brewing Group, who were forced to scale back in the mid-1990s.

S&N had pledged to halt a buying spree of the past three years, but China could be an exception. Beer consumption is still just 18 litres per person per year, well below 50 litres in Japan and 84 in the United States. Anheuser-Busch, the world's largest beer producer, doubled its stake in Tsingtao Brewery to 9.9 % this year and planned to increase that to 27 % in seven years, expanding the U.S.-based brewer's footprint in a market spilling over with the likes Belgium's Interbrew.


12 December, 2003