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China: Anheuser-Busch is expected to bid about $720 million for Harbin Brewery Group Ltd after raising its stake in the Chinese beer maker, topping rival SABMiller's hostile $550 million offer. The maker of Budweiser beer boosted its holding in Harbin from 29 % to 36 % on May 31, which will trigger a full bid under Hong Kong rules. A source familiar with the deal said on June 1 that Anheuser-Busch will offer HK$5.58 a share, the same price it paid to lift its Harbin stake, according to Reuters.

Harbin shares were suspended ahead of the market open on Tuesday after closing at HK$5.10 on Monday. The shares have rocketed 58 % since early May, when SABMiller and Anheuser-Busch first squared-off for control of the company.

Global brewers have been pouring money into beer makers in China, the world's largest market by volume, but where the average person drinks just 19 litres of beer a year, compared with 50 in Japan and 84 in the United States.

Anheuser-Busch's offer values Harbin at 35 times forecast 2004 profits. "Harbin is just a regional brewery. It isn't worth that much," said Herbert Lau, research director of Celestial Asia Securities, who called Anheuser-Busch's bid "unreasonable."

The U.S. brewer's surprisingly high bid and its increased stake make it tougher for SABMiller to make a rival bid, ING Financial Markets analyst Lilian Leung said. Still, SABMiller would not walk away empty-handed. If it sells its stake to Anheuser-Busch at HK$5.58 a share, it would pocket a profit of $124 million on its investment in Harbin.

Some watchers have said Harbin is a more attractive takeover target for London-based SABMiller than for Anheuser-Busch as it would complement existing operations in China's northeast. Another source close to the situation said SABMiller will decide on its next move in the next two to three days, probably after Anheuser-Busch makes a formal offer.

Shares in China's largest brewer Tsingtao leapt 5.37 % to end Tuesday to HK$7.85 as investors hope the sector continues to attract deep-pocketed foreign buyers. Shares in another Chinese brewer, Guangdong Brewery, rose 5.62 percent to close at HK$1.88.

SABMiller had offered HK$4.30 a share for Harbin, valuing the fourth-largest player in China's fast-growing beer market at $550 million. SABMiller acquired a near 30 % stake in Harbin last year, but their partnership has soured. Harbin has made clear it prefers Anheuser-Busch as its foreign partner. The Harbin board welcomed the U.S. beer maker's bid, the source said on June 1. Anheuser-Busch, Harbin and SABMiller all declined immediate comment on Tuesday.

Hong Kong's Securities and Futures Commission (SFC) said Anheuser-Busch had boosted its stake in Harbin to 36 %, from 29 %, buying close to 70 million shares at HK$5.58 apiece on Monday. Under Hong Kong takeover rules, an investor must make an offer for all of a company's shares if its holding reaches 30 %. The bid must be priced at least as high as the highest price the firm paid for shares in the target over the previous six months.

SABMiller also owns 49 percent of China Resources Breweries (CRB), the country's second-largest brewery, which competes with Harbin in north-eastern China. Together, CRB and Harbin control 60-65 % of the regional market. If SABMiller owned Harbin, it would gain pricing power in a sector notorious for competition and thin margins. "If A-B gets control of Harbin, the market in northeastern China will become more competitive, and the price war will intensify," said ING's Leung. Kenny Tang, associate director at Tung Tai Securities, said both sides are extremely keen to prevail. "There's a high chance of SAB making a rival bid because winning it is important to its strategy in the northeastern region of China," he said.

Anheuser-Busch already owns nearly 10 % of Tsingtao Brewery, a stake it intends to expand to 27 % over the next few years.

Foreign beer makers, many of which endured loss-making forays into China in the past, hope that ongoing consolidation in the country's fragmented beer sector, as well as rising incomes, will ultimately bring less competition and higher prices and profits.

Anheuser-Busch on Monday bought about 7% of Harbin from the Capital Group Cos Inc, a minority investor in the company, the source told Reuters. In 2003, Harbin's net profit rose 3.8 percent to US$14.66 million on turnover of US$179.7 million, for a net margin of eight percent.


01 June, 2004