InBev becomes no 2 China brewer with Sedrin deal
(Reuters)
Updated: 2006-01-24 13:47

InBev said it expected the acquisition of the largest brewer in Fujian province on the coast of southeast China to add to its group earnings starting this year, and eventually produce annual cost savings of 110 million euros.

The Belgian-based group which brews Stella Artois, Beck's and Brahma beers, will now have number one beer market positions in the three wealthy coastal provinces of Guangdong, Zhejiang and Fujian after it entered China in 1997.

InBev and a host of global giants, including Anheuser-Busch (BUD.N: Quote, Profile, Research), SABMiller (SAB.L: Quote, Profile, Research) and Heineken (HEIN.AS: Quote, Profile, Research), have been investing in China, whose beer industry is growing strongly while North American and West European markets are stagnant.

"The Sedrin brand will be one of InBev's top five selling brands globally by volume," said Carlos Brito, the new Brazilian Chief Executive of InBev said in a statement.

The deal will reinforce InBev's leadership position in southeast China, while Fujian Sedrin is one of the most profitable Chinese brewers, said Brito, who only took over as the head of InBev from John Brock late last month.

InBev is buying three breweries and a 45 percent market share of the Fujian beer market, whose 35 million inhabitants are some of the wealthiest and biggest beer drinkers in China.

"It's not cheap, but over the long term it's a good deal," said ING analyst Gerard Rijk, who added that investment opportunities were becoming increasingly more expensive.

InBev shares ended up 0.3 percent at 38.90 euros, after the long-awaited deal was broadly in line with market expectations.

InBev is buying the business on 13 times its 2005 earnings before interest, tax, depreciation and amortization (EBITDA), broadly in line with recent industry deals, said analysts, while Sedrin has a relatively high EBITDA margin of over 30 percent.

"The price is toward the high end of expectations, but it's a good profitable business and should add to InBev's strong position in southeast China," said one London-based analyst.

The deal moves InBev to number two in China with a 12 percent share from number three, overtaking China Resources Snow Breweries -- which is 49-percent owned by SABMiller -- while Tsingtao Brewery (600600.SS: Quote, Profile, Research) (0168.HK: Quote, Profile, Research), which is more than a quarter owned by Anheuser-Busch, leads with a 13 percent share.

InBev said it would initially acquire a 39.48 percent stake in the Chinese brewer from the Chinese state following regulatory clearance, and then buy the remaining non-state owned stake of 60.52 percent by the end of 2007.