E-Malt.com News article: 2732

SABMiller, the world’s second largest brewer, said that it would continue seeking acquisitions in China despite throwing in the bar towel in the HK$5.6 billion (£391 million) takeover battle for Harbin Brewery Group. The owner of Miller and Peroni beers announced that it had decided against making a fresh bid for China’s fourth biggest beer producer, paving the way for its main rival, Anheuser-Busch (AB), to complete a HK$5.58 per share takeover of Harbin, The Times Online posted on June 4.

SABMiller said that it would receive US$211 million (£115 million) for its 29.4 per cent stake in Harbin, which analysts believe will enable it to pocket a profit on its investment of about $124 million, excluding costs. The London-listed brewer is expected to invest the proceeds in stepping up its efforts to identify other acquisition targets in China.

Analysts said that the withdrawal of SABMiller was a sensible move, given that AB’s offer translates to an exit multiple of 40 times Harbin’s forecast 2004 earnings. Clients at a government-mandated brokerage in the city of Harbin welcomed the takeover. Sitting under a banner reading “We will make a lot of money this year”, Liu Wei, a small investor, said: “This news will make quite a few people in the city rich.”

SABMiller, which also owns 49 per cent of China Resources Breweries, the country’s second biggest brewer, became involved with Harbin after it bought a 29.4 per cent holding at $2.29 per share in June last year and forged a strategic alliance. However, earlier this year, relations between the two brewers deteriorated, prompting Harbin to establish an alternative alliance with AB, which at the same time bought a 29 per cent stake.

SABMiller responded by launching a HK$4.30 per share bid last month. SABMiller had wanted to go upmarket, while Harbin wanted to forgo fat profit margins in pursuit of the beer-drinking masses, using the foreign brewer’s size to help to drive down prices.

The argument became more acriminous in January, when Harbin was forced to raise prices because of new government regulations on bottle design. Harbin expected Three Star, its local competitor and long-time rival, to follow suit. However, Three Star, also allied to SABMiller, refused to raise prices, hoping to gain additional market share.

A Communist Party worker in Harbin told The Times: “The leaders of the brewery were disappointed that SAB would not protect them against Three Star. It confirmed their increasingly negative impression of SAB.”

Rumours also circulated that SAB planned to combine Harbin with China Resources.

Aware of the animosity created, AB made an initial offer to the Harbin city government, which still controlled a block of shares. The world’s No 1 beermaker offered £5 million directly to the government for unspecified development purposes.

The local government appointed its chief financial adviser to supervise the sale with the help of a team of MBA graduates from Beijing’s prestigious Tsinghua University. SABMiller was in the dark during the entire process.

Unfortunately for SABMiller, it had agreed to buy its 29 per cent stake without any representation on the Harbin board, leaving it without a high-level source of information within the company.


04 June, 2004