UK: SABMiller counters "eye-watering" price for Kingway claim
SABMiller announced its purchase of Kingway yesterday
SABMiller has defended itself against accusations that its Chinese JV is set to pay “an eye-watering price” for Kingway Brewery Holdings.
The UK-based company said yesterday (5 February) that its Chinese venture with China Resources Enterprise, China Resources Snow Breweries, will pay US$864m for Kingway's brewery business. Kingway owns seven breweries in China, four of which are located in the province of Guangdong with the remainder located in Sichuan, Shaanxi and Tianjin.
In a note this morning, however, analysts at Bernstein suggested that the price SABMiller has agreed to pay is above the odds for Kingway. “We believe the acquisition price … represents an eye-watering price, whichever metric we look at,” said Trevor Sterling. With sales of 9.3m hectolitres last year – running at around 65% of total capacity - Kingway will cost China Resources Snow the equivalent of $60 per hectolitre, Sterling added.
“Even if one assumes Kingway could achieve 13% EBITDA margin, similar to CR Snow, this would still value the transaction at over 30x LTM (last 12 months) EBITDA.” Sterling also estimated that building a new brewery from scratch in China works out at costing around $25 per hectolitre.
However, when contacted today, a spokesperson for SABMiller said that the price makes sense for the brewer.
“CR Snow’s Kingway acquisition is an asset deal,” the spokesperson said. “We are buying seven breweries and 14.5m hectolitres of capacity at a level of around $60 per hectolitre, which is in line with previous deals in China.”
Three years ago, Tsingtao Brewery Co bought Shandong Xin Immense Brewery Co for CNY1.87bn (US$280.4m), which equated to around $55 per hectolitre. Also in 2010, Carlsberg spent $352m – or around $157 per hectolitre - on a further 12.25% of Chongqing Brewery Co.
“Whilst you can build capacity at $25 to $30 per hectolitre,” the spokesperson continued, building a brand, sales and distribution network takes years. The price for Kingway reflects this.”
Tsingtao Brewery Co is the market leader in Guangdong, followed by Zhujiang Brewery. SABMiller accounts for around 5% volume share in the southern region.
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