A-B InBev farmed out control of Oriental for five years

A-B InBev farmed out control of Oriental for five years

Private-equity firm Kohlberg Kravis Roberts (KKR) was revealed in May to have had a bid for Treasury Wine Estates knocked back.

But, five years ago this month, the group was making news for a different sale - this time of a stake in South Korea's Oriental Brewery to Affinity Equity Partners

The transaction was an early step in what turned out to be a curious full circle for Oriental Brewery, which in the first half of 2009 had a 43% share of South Korea's beer market and was owned by Anheuser-Busch InBev. At that time, A-B InBev was carrying out a de-leveraging programme as the group attempted to pay off a $7bn bridge loan used to finance InBev's $52bn acquisition of Anheuser-Busch in 2008. This meant it was open to offers for Oriental and, when KKR stepped in with a $1.8bn bid in May 2009, A-B InBev agreed.

But, just one month later, KKR recouped about $400m from the deal when it sold off a stake in the brewer to investment house Affinity Equity Partners. Speaking to just-drinks at the time, a source said that the deal, reportedly for 50% of Oriental, was “pre-planned” from when A-B InBev sold the brewery to KKR.

At the same time, it was revealed that A-B InBev had retained an option to buy back Oriental Brewery in five years.

That option was exercised in April this year, and A-B InBev is now back in control of Oriental at a time when, according to analysts, the future of the South Korean beer market looks rosy. 

Add to that Oriental's increased market share - now about 51% - and you can understand why A-B InBev was keen to retake its former charge. 

What is less clear is why A-B InBev paid KKR and partners $5.3bn for Oriental, or three times as much as they received for it only five years ago.

Analysts, however, described the deal as “sensible”, due in part to Oriental's increased market share and the health of the industry, but also because there is still a lot more room for beer's growth in South Korea.

Furthermore, back in 2009, A-B InBev had set itself a target to pay of the enormous bridging loan that allowed it to come into being. With the help of the Oriental Brewery sale, the group was able to beat that target by some margin and get down to business as a new, enlarged entity. 

KKR was no doubt only too happy to assist.