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China firm buys out SABmiller stake in Snow Breweries

| Wine and liquor

China Resources Beer Holdings agreed to buy out the remaining stake in Snow Breweries, its Chinese joint venture with SABMiller, for $1.6bn, smoothing the way for a takeover of its partner by Anheuser-Busch InBev. The Chinese brewer’s shares jumped.

The deal values Snow at 11 times the brewer’s 2014 net income before taxes, or about half the median 21 times earnings before interest and taxes valuation for brewery acquisitions announced over the past 12 months, according to data compiled by Bloomberg. The transaction was approved by the board and is subject to regulatory approval, China Resources said in a statement.

Sale of the stake may help AB InBev secure Chinese antitrust approval for its acquisition of SABMiller. For China Resources, it will mean tackling the local market without an overseas partner, as beer consumption in the country is expected to grow with younger consumers increasingly migrating to high- end, foreign-brand brews.

“It will be tougher for China Resources Beer now as they have to develop their premium segment organically,” Mizuho Securities Asia analyst Jeremy Yeo said via telephone. “Their priority now will be to accelerate consolidation within beer space in China; any other large asset that comes up, they will be ready to get it.”

Yeo had expected China Resources to pay $3.3bn for the 49% stake it didn’t own, while analysts at Nomura Holdings and Sanford C. Bernstein previously estimated the stake’s value at about $5bn.

The Chinese brewer’s shares rose as much as 32% to HK$16.80 in Hong Kong, the biggest jump in almost a year. The benchmark Hang Seng Index rose 2.4%.

AB InBev said February 25 that it was making progress with Chinese regulators on gaining approval for it to buy SABMiller; the beer industry’s biggest-ever deal.

Beer sales in China, the world’s largest beer market by volume, are expected to rise 41% in the five years through 2019 to reach $104bn, according to a June report from research firm Euromonitor.

Snow is the world’s best-selling brand, Euromonitor’s data shows. The partnership between SABMiller and China Resources, which began with two breweries in 1994, operates more than 90 operations across China, according to SABMiller’s website.

Nomura and UBS Group AG advised China Resources on the deal, along with Rothschild & Co, Citigroup and HSBC Holdings.

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