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Yanjing Said to Near $714 Million Deal for Kingway Assets

Beijing Yanjing Brewery Co. (000729), China’s fourth-largest domestic beer maker, is nearing an agreement to buy brewery assets from Kingway Brewery Holdings Ltd. (124) for as much as 4.5 billion yuan ($714 million), said people with knowledge of the matter.

Yanjing is a frontrunner after beating an offer from Anheuser-Busch InBev NV (ABI), two people said, asking not to be identified because the talks are confidential. China Resources Snow Brewery Co. (291) dropped out of bidding last month, they said.

Yanjing is expanding in China to gain market share as provincial brewers compete in the country’s fragmented beer market and prevent each other’s products from being sold locally. Yanjing had about 12 percent of China’s beer market by volume last year, according to data compiled by Euromonitor International. Just four of the 27 beer makers in China hold more than a 5 percent share of the market, the data show.

An agreement may exclude plants in Shenzhen because Kingway wants to keep those properties, two people familiar with the situation said. The deal may value the remaining assets at 4 billion yuan to 4.5 billion yuan, they said.

Kingway rose 3.5 percent to HK$3.00 a share as of 10:23 a.m. after rising as much as 4.8 percent earlier today. Yanjing dropped 0.7 percent to 15.06 yuan in Shanghai trading.

Photographer: Danfung Dennis/Bloomberg

Yanjing’s earnings are estimated to rise to 1 billion yuan this year. Close

Yanjing’s earnings are estimated to rise to 1 billion yuan this year.

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Photographer: Danfung Dennis/Bloomberg

Yanjing’s earnings are estimated to rise to 1 billion yuan this year.

Beer Market Growth

Guangdong-based Kingway put the assets up for sale in January as it lost market share in its home province to competitors including Tsingtao Brewery Co. and Yanjing. The company said last month its 2011 profit dropped 4.1 percent on rising competition and production costs.

Two calls to Ding Guangxue, a Beijing-based spokesman for Yanjing, went unanswered yesterday. Vanessa Wong, Kingway’s secretary in Hong Kong, declined to comment, as did Leuven, Belgium-based Karen Couck at AB Inbev.

China Resources Snow Brewery is a joint venture between SABMiller Plc (SAB) and China Resources Enterprise Ltd. China Resources Enterprise’s Hong Kong-based spokesman Vincent Tse declined to comment yesterday.

Yanjing’s earnings are estimated to rise to 1 billion yuan this year, an increase of 23 percent from 2011, according to data compiled by Bloomberg. The company shipped 5.45 billion liters of beer last year, making it the nation’s fourth-largest producer after China Resources, Tsingtao and AB Inbev, according to Euromonitor data. The researcher expects China’s beer market to grow 29 percent in the five years to 2016.

Photographer: Nelson Ching/Bloomberg

Yanjing had about 12 percent of China’s beer market by volume last year. Close

Yanjing had about 12 percent of China’s beer market by volume last year.

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Photographer: Nelson Ching/Bloomberg

Yanjing had about 12 percent of China’s beer market by volume last year.

Kingway’s average cost to produce a metric ton of beer increased by 12 percent last year from 2010, causing its gross profit margin to narrow to 17.9 percent from 21.8 percent, the company said in March. Beer sales increased by 1 percent to 934,000 metric tons.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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