E-Malt.com News article: South Korea: Beer market not to change much after the sale of Oriental Brewery - analyst

South Korea’s beer market will continue to move as a duopoly with minimal changes in market structure even if the acquisition of Oriental Brewery by U.S.-based private equity fund Kohlberg Kravis Roberts & Co. is completed, The Korea Herald cited industry experts on May, 8.

"Since KKR is a private equity fund, it is more likely to focus on restructuring and improving corporate profitability, as opposed to taking on a warrior mentality to aggressively seek domination of the domestic beer market," Yoo Jin, a food and beverage market analyst at Goodmorning Shinhan Securities Co., said.

Anheuser-Busch InBev and Kohlberg Kravis Roberts & Co. L.P. announced this week that they reached an agreement in which the Belgium-based brewer will sell Oriental Brewery to an affiliate of KKR for $1.8 billion.

Oriental Brewery, the country's second-largest brewer, currently commands 43 percent of the local beer market, while Hite Brewery has 57 percent.

Yoo said OB had recently expanded its share by about 3 percent, which has naturally made Hite want to get it back.

Despite the economic slump, Yoo projects the beer market to expand 4 to 5 percent this year, a similar growth rate as last year. He said aggressive brand marketing efforts are expected to drive growth.

"KKR has officially stated that it aims to expand its market share, but we don't expect them to be ruthless in the process," Yoo added.

He noted that KKR's acquisition has for now quashed Lotte Group's aggressive attempt at gaining a share of the country's beer market, estimated at about 3 trillion won as of 2008.

The group's drinks unit, Lotte Chilsung Beverage Co., had lost its bid for OB due to, reportedly, a low offer. The company was determined to jump into the beer business to complete its liquor portfolio and create synergy. Its liquor and beverage portfolio ranges from soju, wine to whisky and to soda and fruit juice.

According to Yoo, the local beer market has much room for growth in the premium sector, which currently accounts for about 10 percent. Imported beer, like Stout and Heineken, make up less than 10 percent, he said.

OB in the statement released on May, 7 said AB InBev will have the right, but not the obligation, to reacquire OB within five years after closing the transaction at pre-determined financial terms. The transaction will go through a legal acquisition process under Korean law, with its completion expected in the third quarter of 2009. AB InBev, the world's largest brewer, expects a non-recurring capital gain of approximately $500.



08 May, 2009