Picture: SOWETAN
Picture: SOWETAN

SABMILLER, the world’s second-largest brewer, said on Tuesday that China Resources Snow Breweries (CR Snow), its joint venture with the China Resources Enterprise conglomerate, had agreed to buy the brewery business of Chinese beer maker Kingway for $864m.

The deal will bolster CR Snow’s market position in the booming Guangdong region and add scale and market presence in the Sichuan, Shaanxi and Tianjin municipalities.

SABMiller, the maker of Miller Lite, Grolsch and Peroni Nastro Azzurro, continues to eye opportunities in emerging markets such as Asia, Africa and Latin America to offset the effects of declines in Europe, where tough economic conditions prevail.

"The acquisition of Kingway gives us greater access to high growth and attractive regional markets in China, thereby enhancing CR Snow’s competitive position," SABMiller Asia Pacific MD Ari Mervis said.

London-based Jefferies International analyst Dirk van Vlaanderen said the deal added to an already strong leadership position in the Chinese beer market.

"At the high level, we like the strategic rationale of what the Kingway deal represents. It would add about 2% to market share from the current position of about 23%. It also helps that this ongoing trend of industry consolidation in China is continuing, and longer term that will support a better pricing environment. On a more local level, the deal is very compelling because it gives China Resources Snow much needed critical mass in the very attractive, very high growth Guangdong province," he said.

CR Snow will acquire Kingway’s production and sales business, including seven breweries. The transaction price of the deal included a small portion of loans and debt, the firms said.

"Looking at the acquisition price on a per hectolit re basis, you come to about $60 per hectolitre — that’s what the deal’s costing them and that’s pretty much in line with the median in recent transactions in China ," Mr van Vlaanderen said.

"They get the Kingway brand, an established route to market, a trained workforce from day one, all of that together makes a lot of sense as to why they would have chosen to pay a premium rather than build a new brewery."

SABMiller said the deal would add 14.5-million hectolitres of beer production capacity.

The company beat Beijing Yanjing, China ’s fourth-largest domestic brewer, and Anheuser-Busch InBev, the world’s largest brewer, for Kingway, which announced plans to sell in January last year because of rising labour and raw material costs, fierce competition and slowing sales.

"Kingway has been a business that hasn’t done well operationally. I think the idea is to apply the best practice of SABMiller and China Resources Snow and really drive step change in profitably like they did with Lion Nathan," Mr van Vlaanderen said.