In Marrying Miller Lite, Budweiser May Need to Split With Chinese Best-Selling Beer

Inside AB InBev's Proposed $106B Deal for SABMiller
  • Chinese antitrust concerns could force AB InBev to sell Snow
  • Snow is world's best-selling beer with 23% of China market

In creating the world’s biggest beer company, Anheuser-Busch InBev NV may need to let go of the planet’s best-selling beer: China’s Snow.

That’s among the probable outcomes Guotai Junan Securities Co. anticipates in the wake of AB InBev’s agreement to buy SABMiller for $106 billion. Analysts at Goldman Sachs Group Inc., BNP Paribas SA and Daiwa Capital Markets have also pointed out the likelihood of such a scenario in recent notes to clients.

The idea is that the merger would give the Belgian company about 40 percent of China’s beer market -- too much for regulators’ comfort -- and result in the disposal of a joint-venture stake back to China Resources Enterprise Ltd. SABMiller’s 49 percent stake in the venture, called China Resources Snow Breweries, could be worth about 600 billion yen ($5 billion), according to Nomura Holdings Inc.

"Antitrust issues would be the biggest barrier for the purchase," said Guotai Junan’s Andrew Song. “If the deal is completed, the combined market share of AB InBev and China Resources may trigger an antitrust review.”

For the maker of Budweiser, unloading the Chinese venture would be akin to forfeiting leadership in a market that researcher Euromonitor estimates will grow more than 50 percent to 279.7 billion yuan ($44.1 billion) by 2019. Snow, which had a 23 percent share of China’s market last year, outsells all other beers globally after overtaking Bud Light in 2008 and the company produces enough liquid to fill about 12 Olympic-sized swimming pools every day, according to SABMiller’s website.

Vincent Tse, a spokesman for China Resources Enterprise, declined to comment on how a AB InBev-SABMiller deal would affect his employer. The company will respond accordingly based on the merger conditions and China’s anti-monopoly law, Chief Financial Officer Frank Lai was quoted as saying by Apple Daily Tuesday.

China Resources Enterprise closed 0.1 percent higher at HK$14.94 in Hong Kong Wednesday, after rising as much as 5.6 percent Tuesday following the deal agreement.

AB InBev has thought through the regulatory implications of the proposal and the company would seek to resolve any contractual or regulatory issues if they emerge, said Karen Couck, a spokeswoman at the brewer.

If the stake is for sale, potential buyers could include Heineken NV, which has no presence in China, and Kirin Holdings Co., China Resources Enterprise’ joint venture partner in soft drinks, Nomura analyst Satoshi Fujiwara wrote in a report Tuesday.

Heineken declined to “speculate” on any possible opportunities while the company is following the deal’s developments, Christine van Waveren, a spokeswoman for the company, said in an e-mailed reply to questions. Kirin spokesman Daigo Yamazaki declined to comment.

The AB InBev-SABMiller deal would be closely watched by Chinese regulators, said Zhaofeng Zhou, an antitrust lawyer at law firm Bird & Bird in Beijing.

Though rare, China has blocked deals involving foreign companies before. In 2014, it rejected a proposed three-way alliance among Danish shipping line A.P. Moeller-Maersk A/S, Dublin-based Mediterranean Shipping, and French shipping company CMA CGM. The most high-profile case was in 2009 when it barred Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd.

Yet in 2008, China gave a conditional approval for InBev NV to complete its $52 billion takeover of Anheuser-Busch Cos., barring the acquirer from raising stakes in existing units or buying shares of new brewers, including the maker of Snow beer.

China’s Ministry of Commerce, which reviews the legality of mergers, didn’t immediately respond to faxed queries.

“As long as they are prepared to divest their investment or their shares, I think it should be ok although it’s really hard to say because this deal is massive,” Zhou said.

SABMiller has been producing Snow beer with China Resources Enterprise since 1994. Should AB InBev be forced to sell, China Resources Enterprise will likely buy the stake from the British brewer because of the sales potential in the world’s second-largest economy, said Duncan Fox, an analyst with Bloomberg Intelligence.

“If the economy grows, they should be the main winner,” Fox said. “Have they learnt all they can from the joint venture with SABMiller? Probably yes. They know how to grow, acquire, market brands at different price points."

After China Resources Enterprise, Tsingtao Brewery Co. was the second-largest beermaker in China last year with a 18 percent share by volume. AB InBev -- whose brands include Budweiser, Harbin and Sedrin -- ranked third with 14 percent, according to Euromonitor.

Beer is the one of the two businesses that contributed to earnings for China Resources Enterprise in the first half with underlying profit increasing 30 percent to HK$544 million. The company is already selling its retail, food and beverage operations to its unlisted parent as losses at its venture with Tesco Plc drag down earnings.

If antitrust isn’t an issue, AB InBev would want to retain the Snow Beer partnership, which could benefit the Chinese company, according to Hannah Li, senior analyst at UOB Kay Hian Holdings Ltd.

"China’s beer market is currently going through consolidation and only the strongest brands can survive,” Li said. “Cooperating with ABI, which has a strong background in the beer industry, could help China Resources improve its products and expand its sales network.”

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