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Asia's beer war is a battle of acquisitions

Breweries snap up rivals as markets shrink

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Production in China, the world's largest beer market, is in decline.   © Reuters

TOKYO Major Japanese drinks manufacturer Asahi Group Holdings and Anheuser-Busch InBev, the world's largest brewery, have agreed for Asahi to acquire InBev's beer businesses in five European countries in a deal worth 7.3 billion euros ($7.6 billion). This marks the largest purchase ever by a Japanese company of an overseas beer business. With the market across Asia levelling off, competition is becoming increasingly fierce and, for many Asian breweries, future growth is at stake.

The Dec. 13 deal covers the units of what was SABMiller, a U.K. brewery acquired by InBev, in the Czech Republic, Poland, Hungary, Slovakia and Romania.

Total annual sales of the five units came to about 200 billion yen ($1.7 billion) and operating profit $367 million in the fiscal year ended March 2016. Each enjoys a domestic market share of more than 30% and, excluding Slovakia which ranked second, are the leading players in local markets. The high market shares guarantee stable profits.

In October, Asahi also acquired Italian brewery Peroni and three other European beer companies, which had all been under SAB's wing, for $2.9 billion at that time. InBev had put all up for sale in order to acquire SAB in compliance with antitrust laws.

According to Kirin Holdings, another Japanese brewery, 189 million kiloliters of beer were produced by the main global players in 2015, down 1.1% from a year earlier. As the size of the market shrinks, many analysts expect InBev's takeover of SAB to be the last shift in a global realignment and predict that the chances are slim of a promising acquisition target emerging any time soon.

This is one of the reasons Asahi was prepared to go up to $7.6 billion to secure the five countries, having originally envisaged a figure closer to $4.3 billion. Asahi stocks plunged when the acquisition was announced on Dec. 13 on concerns that it may erode the brewery's financial health. Yet, an Asahi executive was confident, "We will never have such a chance again."

In China, the biggest beer market in the world, production declined 4.3% in 2015, while output in the whole of Asia, which makes up 34% of global production, was down 1.3%.

Asahi's archrival Kirin has set its sights on Asia and Australia. A senior company official described the region as "the pillars of our overseas strategy." Kirin bought a stake in San Miguel Brewery, an affiliate of leading Philippine conglomerate San Miguel, in 2009. This was followed by the 2015 purchase of Myanmar Brewery for $560 million.

The company is also considering transforming Brasil Kirin, a wholly owned subsidiary it acquired for $2.56 billion in 2011, potentially into a joint venture. It is negotiating with three other breweries, including Heineken, over partnerships in an effort to get its Brazilian business back into shape.

San Miguel Brewery, which commands 90% of the Philippine market, already has operations in Hong Kong and Indonesia. San Miguel had also expressed an interest in Peroni before Asahi sealed the deal.

China Resources Beer, the country's top brewery, is looking both at home and abroad for growth. Outside the country, the company also bid in the auction for the European businesses won by Asahi in December. There is speculation it will move to acquire Beijing Yanjing Brewery, which has been performing poorly outside the core battlefield of Beijing. Having raised 9.5 billion Hong Kong dollars ($1.2 billion) through selling new shares to existing shareholders in July, China Resources Beer has a sufficient war chest. The company plans to use the funds to terminate a joint venture contract with SAB and carry out mergers and acquisitions.

In the meantime, Tsingtao Brewery, China's second-ranked producer, is suffering in the face of competition from foreign brands in the mid-range and high-end segments, once an area of strength for the company. Under the circumstances, there are rumors that Tsingtao will move to acquire Chongqing Beer -- currently affiliated with Carlsberg.

In Thailand, Southeast Asia's second-largest beer market, Boon Rawd Brewery and Thai Beverage dominate. Heineken and other foreign breweries are active in the high-end segment, but the two local beer companies control 90% of the market. Thai Beverage is keen on the idea of a merger abroad, aiming at becoming a global player.

The market receiving the greatest attention today is Vietnam, the largest beer market in Southeast Asia and the last great beer frontier.

On Dec. 6, Saigon Beer Alcohol Beverage, or Sabeco, went public on the Hochiminh Stock Exchange, closing the day at 132,000 dong, 20% above the price projected by the Vietnamese government. The stock comes in near the top of the market capitalization ranking at the exchange.

The Vietnamese government, which owns about 90% of Sabeco shares, announced in August it would sell all of its holdings in the company, with an auction scheduled for sometime next spring. Sabeco has 40% of the domestic market share. The world's major breweries have already shown an interest in bidding. Some expect the sale of the shares to produce in the region of $2.56 billion in total.

Asahi and Kirin, as well as InBev and Heineken, are said to be mulling a de facto acquisition of Sabeco. Thai Beverage CEO Thapana Sirivadhanabhakdi declared Vietnam is a "priority overseas market." Boon Rawd is also interested, and the race for the Vietnamese brewery is likely to heat up.

The Vietnamese government also intends to sell its 82% stake in Hanoi Beer Alcohol and Beverage, or Habeco. Minority shareholder Carlsberg could possibly increase its stake. Although the shakeup of the global beer industry sparked by InBev's takeover of SAB will calm down soon, the realignment of the Asian market looks set to last for some time.

Nikkei staff writer Daisuke Harashima in Dalian contributed to this report.

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