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Analysis - Anheuser-Busch InBev's Oriental Brewery repurchase "looks sensible"

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As expected, Anheuser-Busch InBev is using its call option to reclaim South Korea's Oriental Brewery (OB).

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Four-and-a-half years since it sold the asset to private equity group Kohlberg Kravis Roberts & Co (KKR) and Affinity Equity for US$1.8bn, the Belgium-headquartered group has announced its intention to buy back OB for $5.8bn. But, even with A-B InBev pocketing around $320m in cash from the 2009 agreement, this seems a very good deal for OB's current owners. 

Bernstein analyst Trevor Stirling admitted in a note today: “At first sight, it looks very strange to sell a business and then buy it back five years later for three times as much ... and it certainly has been a brilliant deal for KKR.”

But, Stirling flags three reasons for the tripling of the price. One is the appreciation of South Korea's Won currency over the period – around 22%; another is the likely “marginally higher multiple” that A-B InBev is paying compared to what it sold it at; but, the main reason, the analyst suggests, is the growth of Oriental's earnings since 2009. 

OB has also been gaining significant market share since 2006 and now has around 51% volume share in South Korea, headed by its flagship brand Cass. 

A-B InBev itself noted today that the long-term prospects for South Korea's beer market are healthy. Volumes are expected to grow by around 13% in total by 2022, having risen by an average of 2% annually between 2009 and 2012.

Meanwhile, South Korea's per capita beer consumption is “relatively low”, so there is “plenty of room for further modest volume growth,” Stirling notes.

In terms of brands, A-B InBev has said it will look to develop its international brands in South Korea – Budweiser, Corona and Hoegaarden – as well as OB's own brands.

The group also plans to expand exports of OB's brands.

So despite the headline tripling of the price, as Grupo Santander analyst, Anthony Bucalo, said in a note: “The deal looks sensible.” 


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