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Sat, Dec 10, 2005 - Page 12 News List

InBev wins fierce bidding war for brewery in China

NY TIMES NEWS SERVICE , SHANGHAI

InBev, the world's largest producer of beer, has won a fierce bidding war and is set to acquire one of China's largest brewers for about US$750 million, according to people briefed on the talks.

The deal to acquire the producer, Fujian Sedrin Brewery (福建雪津啤酒), is one of the largest foreign purchases of a Chinese company. And it represents the latest push into China by the world's biggest beer makers, which have been aggressively competing to buy assets and win stakes in the nation's fragmented and undeveloped, yet fast-growing beer market.

Marianne Amssoms, a spokeswoman for InBev, which is based in Brussels, Belgium, declined to comment on Thursday on the negotiations for Fujian Sedrin. Officials at Fujian Sedrin could not be reached for comment.

But people with knowledge of the deal said InBev had recently outbid Heineken, based in the Netherlands, and Anheuser-Busch, based in the US, to win the right to take complete control of Fujian Sedrin, a state-owned brewery based in one of China's wealthiest coastal provinces.

Analysts said that they were surprised at the high price Fujian Sedrin drew, because it is only the nation's eighth-largest brewer and China's beer market is not very profitable.

Yet for the last two years, the heavyweights of the beer industry have been snapping up assets in China, which recently surpassed the US to become the largest beer market. With growth in beer sales weakening in the US and Europe, brewers have been consolidating and seeking acquisitions, particularly in developing countries.

Last year, Interbrew, the giant Belgian beer maker, merged with AmBev, the big Brazilian beer producer, to form InBev.

One of the company's biggest target markets has been China, where it has made a string of deals, investing more than US$400 million in Chinese breweries before its bid for Fujian Sedrin.

Other brewers are rushing here, too.

Last year, Anheuser-Busch paid US$694 million for Harbin Brewery, based in northeastern China. And earlier this year, Anheuser tripled its stake in Tsingtao Beer, the nation's largest brewer, to 27 percent.

But many of the deals have puzzled analysts, who say China's market is highly fragmented, with more than 400 breweries. While consumption is growing steadily, the market is struggling with overcapacity and low prices. A bottle of beer in China often costs as little as US$0.25.

So why are beer companies bidding up prices and scrambling to get here?

"I don't know," said Joe Zhang, an analyst at UBS who wrote a report on the beer sector last June called "Burning Cash Slowly."

"If they have US$2 billion, why don't they give it to me and let me invest it in some stocks? That'll do much better over the next few years," Zhang said.

Zhang says China's beer prices are too low, its branding efforts anemic, and many beer makers sign exclusive deals with restaurants and entertainment spots.

The three largest brewers, which have a 35 percent market share, made only US$100 million in profits last year, which represents around a seventh of what Heineken made and about 5 percent of what Anheuser-Busch reported, he said.

"Don't expect this picture to change over the next few years," Zhang said.

Denise Chai, an analyst at Merrill Lynch, agreed.

"To quote the former head of Harbin Brewery: `Everybody wants a seat at the movie, even though they know nothing's going to be playing for 20 years,'" Chai said. "It's a very low-margin, fragmented business."

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