E-Malt.com News article: 2734

China: Anheuser-Busch Cos. Inc., the world's biggest beer maker, has won the bidding war for control of China's Harbin Brewery Group Ltd. as rival SABMiller PLC withdrew its competing offer and said it would instead sell its Harbin shares to the maker of Budweiser.

SABMiller will sell its 28 % share in Harbin Brewery to Anheuser-Busch for $211 million under its rival's latest offer of 5.58 Hong Kong dollars (72 U.S. cents) a share, London-based SABMiller announced on June 03, 2004. It withdrew its offer for the Chinese company of 4.30 Hong Kong dollars (55 U.S. cents) a share.

U.S. giant Anheuser-Busch offered US$720 million or HK$5.58 a share for the Chinese brewer this week, trumping a HK$4.30 per-share hostile bid last month from SABMiller. SABMiller's retreat ends the first takeover fight between foreign firms for a big Chinese company, although the London and Johannesburg-listed brewer does not leave empty-handed.

SABMiller, which last year bought 29.4 % of Harbin before their partnership soured, said it would accept Anheuser-Busch's offer for its shares, generating a profit before costs of about US$124 million. Both global companies want a bigger share of China's beer market, which is the world's largest by volume and is growing at a rate of 6% a year.

Analysts have said the Budweiser brewer's offer for Harbin, a regional player in China's northeast, is high at about 35 times Harbin's forecast 2004 profits. "It's the wise choice," Herbert Lau, research director at Celestial Asia Securities, said of SABMiller's retreat. "The takeover battle derailed from the underlying fundamentals."

Anheuser-Busch said in a statement that it noted SABMiller's withdrawal and would proceed with its offer for Harbin shares. SABMiller said it did not consider Harbin an asset that it had to have at any price. "We remain fully committed to the Chinese beer market and we must evaluate every potential acquisition on its merits," SABMiller Chief Executive Graham Mackay said in a statement. "We believe that the AB offer price for Harbin more than fully values the business."

Trading in Harbin Brewery shares, which had risen as much as 9% above Anheuser-Busch's offer price on hopes of a bidding war, were suspended in Hong Kong on Thursday. Harbin said this week it welcomed Anheuser-Busch's offer and would recommend that shareholders accept it. Harbin said it preferred Anheuser-Busch as its foreign partner.

DBS Vickers sales director Antony Mak said Hong Kong-listed beer stocks were likely to retreat. "They are all overpriced and above their fair value because of the takeover contest," he said.

Hong Kong-listed Chinese beer makers Tsingtao Brewery and Guangdong Brewery have rallied during the bidding war for Harbin. Tsingtao shares fell 3.3 %, but Guangdong rose 1 %.

Anheuser-Busch this week raised its stake in Harbin from 29 %, and now controls 37 % of the Chinese company's shares, which would have made a challenge more daunting for SABMiller. Harbin stock hit a record HK$6.10 on Wednesday before closing at HK$5.95, a gain on the day of 16.7 %, on hopes SABMiller would raise the stakes.

Anheuser-Busch, SABMiller and other global firms such as Heineken and Interbrew are pouring money into China despite a fragmented and fiercely competitive market where a 640 millilitre (22.5 fl oz) bottle costs as little as 12 U.S. cents. They are counting on further consolidation and rising household incomes to lift prices and profits and see vast potential in a country where the average person drinks just 19 litres (four gallons) of beer per year, compared with 50 litres in Japan and 84 litres in the United States.

Anheuser-Busch owns 10 % of Tsingtao Brewery, China's largest, a stake it plans to increase to 27 % over the next few years.

SABMiller owns 49 % of China Resources Breweries (CRB), the country's second-largest beer maker.

Some industry watchers said Harbin would be more valuable to SABMiller than to Anheuser-Busch, because CRB and Harbin control a combined 60 to 65 percent of the market in northeast China, which would give SABMiller pricing power that has been a rarity in China's cut-throat beer sector.

Anheuser-Busch's win is likely to intensify the local rivalry. "Competition will intensify in China's northeastern market," said ING analyst Lilian Leung. "Ultimately, it is negative for Harbin and CRB. It will be difficult to improve their profitability."



04 June, 2004