E-Malt.com News article: 2610

Hong Kong: Harbin Brewery, the target of a potential takeover battle between the world's two biggest brewers, said its partnership with SABMiller had failed, and that it favoured having Anheuser-Busch as its major shareholder. "We had hoped the (SABMiller) tie-up would boost our brand, and improve technology and sales. But in the past ten months, nothing has happened," Harbin Chief Executive Peter Lo told Reuters in a telephone interview on May 6. He said Anheuser-Busch, which over the weekend said it was buying 29 percent of Harbin for HK$1.08 billion (US$138.46 million), or HK$3.70 per share, was a better long-term partner.

SABMiller, the world's second-largest beer maker, this week launched a hostile US$553 million bid for Harbin after Anheuser-Busch revealed its investment. SABMiller, offering HK$4.30 a share, challenged Harbin's recommendation that shareholders take no action on its bid. "The Harbin management team need to explain why they think our offer undervalues their business," SABMiller spokesman Nigel Fairbrass told Reuters in Hong Kong on May 6.

Harbin shares, which leapt nearly 46 percent on May 6, closed a further 3.7 percent higher on Thursday at HK$4.875, about 30 times its forecast 2004 profits. SABMiller owns a 29.4 percent stake in Harbin, China's number-four brewery, which it bought last year.

"We believe if you run a company in China, local management is important," Lo said. "Without the support of Harbin's management and staff, how can SABMiller run Harbin Brewery, even if it holds a majority stake?" Lo declined to say whether Harbin expected a counter-offer from Anheuser-Busch. St. Louis-based Anheuser-Busch, brewer of Budweiser beer, declined to comment on Thursday on its plans.

Lo said conflicts of interest had emerged over SABMiller's holdings in both Harbin and China Resources Breweries, which is 49 percent-held by the Anglo-South African firm. Harbin and China Resources Breweries, the country's no. 2 beermaker, dominate northeast China, with a combined market share of 60-70 percent. "Early this year, we wanted to raise prices but they (China Resources Breweries) wanted to take advantage of us and cut prices," he said.

Harbin has said it terminated its strategic partnership with SABMiller, and Lo said Anheuser-Busch would make a better partner for Harbin. "We quite welcome A-B to become our major shareholder. A-B has been quite successful in the past few years in China. They only have one plant, in Wuhan, but you can find Budweiser all over China. They are the only one building a nation-wide network," he said.

Anheuser-Busch holds a nearly 10 percent share in China's biggest beer maker, Tsingtao Brewery, a stake it will boost to 27 percent over the next few years. Nonetheless, Tsingtao said on Thursday it supported Anheuser-Busch's investment in its rival.

"We would not bet on a higher offer from A-B, given the frothy price already on offer from SABMiller," said David Webb, a shareholder activist and board member of the Hong Kong stock exchange. "Don't depend on the big boys fighting it out," he said on webb-site.com.

Although Harbin prefers Anheuser-Busch, SABMiller's takeover bid could be lucrative for top Harbin officials, including Lo. Last summer, a group of Harbin officials paid HK$5 million for five percent of the vehicle that bought the stake in Harbin on behalf of SABMiller.

SABMiller granted the Harbin officials put options requiring SABMiller to buy back the option shares for HK$55 million, exercisable in two tranches and subject to certain criteria. In the event that SABMiller made a general offer for Harbin, its payment to exercise the option could be doubled, according to a Harbin announcement made on June 30.

Webb said it appeared that the option had become exercisable and that Harbin directors stood to receive a windfall payout of HK$110 million. He called on Harbin to disclose all the details surround the put option. Harbin has not commented on the put option since the bid. "That's a pretty decent return on their HK$5 million investment less than a year ago," he said on webb-site.com. SABMiller declined to comment on the put option and a Harbin executive was not immediately available for comment.


07 May, 2004