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AB InBev Reaches Deal for Sale of SABMiller’s Chinese Beer Business
Move comes as Belgian brewer seeks Chinese regulatory approval for acquisition of its rival
By TRIPP MICKLE and LAURIE BURKITT
Updated March 1, 2016 10:39 p.m. ET
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Anheuser-Busch InBev NV said it has agreed to sell SABMIller PLC’s Chinese beer business to China Resources Beer Holdings Co., as the Belgian brewer seeks Chinese regulatory approval for its pending acquisition of its biggest rival.
China’s government-controlled brewer has agreed to acquire SABMiller’s 49% interest in the joint venture known as CR Snow in a $1.6 billion deal that would give it full ownership over Snow, the world’s No. 1-selling beer by volume. China Resources and SABMiller have been partners in the joint venture since 1994.
The deal is subject to regulatory approval and contingent upon AB InBev closing its roughly $108 billion acquisition of SABMiller. The Belgian brewer said it expects to do that in the second half of this year.
AB InBev had been expected to arrange for the sale of SABMiller’s stake in Snow since announcing last year its roughly $108 billion takeover of SABMiller, but people familiar with the company’s plan in January said it would try to keep the stake and maintain operational control over the company. Ultimately, it decided to sell rather than keep Snow because holding on to the business could have slowed the regulatory approval process, said a person familiar with the company’s strategy.
If approved, the deal would enable AB InBev to focus on higher-priced brands and to build a strategy to boost profit margins in China, where competition is stiff and prices are low. The country is the world’s largest beer market by volume and has been the main driver of growth for global beer consumption in the last decade, accounting for more than half of the beer industry’s total volume increase.
For China Resources, the deal would propel China further in its ambitions to enter the global market and cap a string of recent Chinese acquisitions. In February, China’s state-owned China National Chemical Corp offered $43 billion in cash to buy Swiss pesticide and seed company Syngenta AG, marking the most ambitious foreign takeover attempt by a Chinese company to date. General Electric Co. agreed to sell its appliance unit to Chinese manufacturer Haier Group for $5.4 billion in January.
The sale of Snow mirrors the approach AB InBev has taken in the U.S. and Europe. In the U.S., AB InBev negotiated a sale of SABMiller’s interest in MillerCoors LLC to Molson Coors Brewing Co. In Europe, it is in talks to sell Asahi Group Holdings Ltd. rights to SABMiller’s Peroni and Grolsch brands.
China Resources had the first option to buy SABMiller’s interest in CR Snow, which will become a wholly owned subsidiary of the Chinese company.
Taking over Snow would make China Resources the largest brewer in China with a 30% market share, according to industry tracker Seema International Ltd. AB InBev has an estimated 18% market share in China, while Tsingtao Brewery has 22%, Beijing Yanjing Brewery Co. has 13% and Carlsberg A/S has 6%.
Snow’s position as the world’s biggest beer hasn’t added up to big profits for China Resources, which said its beer profits declined 19% to about $97 million in 2014 from about $121 million in 2013.
Industry consultants say Snow has lost some of its edge with Chinese consumers in recent years. In an annual ranking of China’s top 50 brands, measured by market value and surveys with Chinese consumers, Snow dropped from a ranking of 37 in 2013 to 50 in 2014, according to market-research firm Millward Brown. Last year, it didn’t make the list.
“Brands like Snow are seeing an erosion of sales as younger consumers move to wine and cocktails,” said Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group.
China is one of the world’s most challenging beer markets because beer prices are so depressed. While it’s the world’s largest beer market by volume, it’s only the second-largest market by value, behind the U.S., according to research from the Dutch bank Rabobank. Earnings before interest and taxes per hectoliter in China are $2, compared with the global average of $19 per hectoliter, according to Seema International.
Competition is fierce, as China has a vast number of regional beer brands that vie for market share and drive prices down. For a bottled liter of beer, comparable to a 40-ounce bottle sold in the U.S., the average retail price is around 9.5 yuan, or around $1.45, far below the U.S., where prices average $4.10, according to Rabobank.
Industry beer volumes declined by 6% last year in China. Wine and spirits have become more affordable and available in the Chinese market in recent years, which means consumers pass up a pint for a pinot noir, said Mr. Cavender. Some trendsetters are experimenting with premium craft beer, though the market for it is still tiny, Mr. Cavender said.
The decline marks a reversal from prior years when per capita consumption in the country rose to 45 liters from 7 liters over a 25-year span, according to Deutsche Bank.
Without Snow, AB InBev’s China business will continue to focus on its Budweiser and Harbin brands. Volumes of higher-priced beers like those brands fared better last year than lower-priced beers. AB InBev said its beer volumes in China increased 0.4% in 2015, and revenue rose about 8% to $4.2 billion from $3.9 billion in 2014.
During a call with analysts last week, AB InBev Chief Executive Carlos Brito said the company expects the beer industry in China to remain under pressure this year as the economy pressures blue-collar consumers. “We are very happy to see that our business is more skewed towards those segments that are growing,” Mr. Brito said.
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