AB InBev to pay $5.8 billion for Korea's Oriental Brewery
The world's biggest beermaker, AB InBev, based in Leuven, Belgium, will fund the acquisition with internal resources, according to a statement Monday. The company will receive about $320 million in cash when the transaction is completed.
In 2009, AB InBev sold Oriental Brewery to KKR for $1.8 billion, seeking to cut debt after InBev's $52 billion takeover of Anheuser-Busch Cos. KKR subsequently sold 50 percent of Oriental to Affinity. Since then, Oriental Brewery has more than doubled earnings, boosted by its Cass brand.
"On the surface, the deal seems odd as they're paying more than three times for Oriental than what they sold the business for five years ago," said Pablo Zuanic, an analyst at Liberum Capital. "However, this signals to us they see growth in South Korea - not so much in terms of market growth, but to improve share and drive the penetration of Budweiser and Corona."
Created via the brewing world's biggest merger, AB InBev has itself grown through a series of acquisitions, including taking control of Mexico's Grupo Modelo for $20.1 billion last year. Cost-cutting from that deal helped offset slumps in beer volume sold in the United States and Brazil, the company's biggest markets in the third quarter of 2013.
Oriental Brewery's market share in South Korea is about 60 percent, up from about 40 percent in 2009, according to Lee Kyung Shin, an analyst at KB Investment & Securities Co.
AB InBev's purchase represents the second takeover of an alcoholic-beverage company since the start of 2014. Japan's Suntory Holdings Ltd. agreed to buy U.S. bourbon maker Beam Inc. for about $16 billion last week.
"It's a sector where M&A makes sense," said Jonathan Fyfe, an analyst at Mirabaud in London. "There are probably more options to do things this year than in 2013 thanks to the fact these companies are deleveraging fast."
European drinks companies are targeting Asia as they seek to lock down control in a region where the beer and spirits markets are still expanding.
Though the world's Top 10 brewers now control about 65 percent of beer volumes, almost twice the level they did in 1998 after two decades of consolidation, that dominance is skewed toward developed markets, according to Nomura analysts. In Asia, the Top 4 companies have just 43 percent of the beer market, compared with 88 percent in North America.