Consumer

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

While China's state-owned insurers may be paying over the odds to take debt-laden banks off the hands of overseas firms such as Citigroup, other companies are getting better deals from Western exits.

On Wednesday, SABMiller agreed to sell its stake in Snow Breweries, maker of China's best-selling beer, to partner China Resources Beer for $1.6 billion, less than a third of the value estimated by analysts at Nomura and Sanford C. Bernstein. China Resources Beer shares jumped as much as 35 percent in response.

It may be too early for shareholders to break out the champagne (or premium ale). The low-ball price shouldn't surprise. China's beer market is rapidly going flat, and the buyer was the only logical choice for SABMiller, which needed to sell the 49 percent stake to secure approval from Beijing's antitrust regulators for its takeover by Anheuser-Busch InBev.

China Resources Beer had right of first refusal for any sale and, in a country where beer can sell for as low as 3 yuan (46 cents) a bottle, foreign investors are fast realizing how tough the market is. It's unlikely the Chinese buyer faced stiff counter-bidding for the stake.

Cold Comfort
Snow leads China's top beer brands by market share (%)
Source:Euromonitor International

Snow, which Euromonitor said had 21 percent of China's beer market in 2014 (ahead of Tsingtao at No. 2 and the No. 4 brand, AB InBev's Harbin) is in an industry where increasingly affluent consumers are keener on more sophisticated drinks (wine) or premium beer brands such as Stella Artois (also an AB InBev brand). Beer production has slumped in recent years. 

In January, China Resources Beer posted a drop of about 5 percent in second-half beer revenue. For 2014, operating income from the company's beverage unit fell 3.6 percent to HK$2.7 billion ($348 million).

There's little doubt the Chinese brewer got itself a good deal. The purchase price is a small chunk of the $7.2 billion in cash ICBC estimates the firm has after selling its non-beer businesses to its state parent last year. Still, today's market reaction looks less impressive when set against a longer time-frame, with the stock having been trading near its lowest since 2009 recently.

Cheap Cheers
The brewer's shares jumped the most in almost a year
Source: Bloomberg

Before celebrating this steal of a purchase, consider what China Resources Beer is losing. SABMiller, its partner since 1994, brought a lot to the venture and was a key proponent behind the brewer's move up the beer rankings. The London-based company has a stable of high-end beers including Peroni and Grolsch, which the brewer is also selling (to Japan's Asahi) to smooth the way for AB InBev's takeover. (China's top-selling premium beer, according to Euromonitor, is Budweiser.)

The venture's move into the premium beer market, under its Opera brand, has worked. By the first half of last year, premium to super-premium brands that sell for as much as 20 yuan a bottle made up 45 percent of China Resources Beer's sales volumes, according to Religare analyst Justin Tang. 

The question is whether the Chinese company can continue making those inroads on its own. If not, it may just be looking for a new partner.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net