Comment - SABMiller, CR Snow To Get Second Bite at Kingway?
Last year, CR Snow was due to acquire a 21% stake in Kingway from Asia Pacific Breweries' for CNY1.08bn (US$165.7m). But, at the eleventh hour, Kingway's majority shareholder, government-controlled GDH, exercised its veto on the deal and bought the stake itself.
However, after a tough run of results, Kingway announced this week that it intends to seek a sale of at least part of its business. The brewer has launched a strategic review, but there is an end goal already in mind.
"It is expected that third parties will be invited to submit proposals and indicative offers for possible acquisition of certain of the group's brewery business and assets," it said. Only existing brewers and beer distributors need apply, add the firm, which will also consider leasing its facilities.
CR Snow would almost certainly be interested if there is any whiff of an opportunity to come back to the table. The brewer, which is 49%-owned by SABMiller and 51%-held by China Resources Enterprise, is keen to expand via domestic acquisitions.
Last year, CR Snow completed a series of deals, including the acquisition of all outstanding shares in Hangzhou Xihu Breweries Asahi and Hangzhou Xihu Breweries Asahi, a 49% stake in Jiangsu Dafuhao Breweries Co and control of Henan-based Shangqiu Lanpai Brewery. In August, it also signed a JV deal to take control of Guizhou Moutai Beer.
As part of this, CR Snow has shown that it is keen to build a greater presence in Kingway's native Guangdong province, which houses the key cities of Guangzhou and Shenzhen.
CR Snow may be China's largest brewer, with a market share of around 21% by volume, but, in Guangdong, it is outgunned by the market number two, Tsingtao. The figures suggest that affluent Guangdong has been something of a powerhouse for Tsingtao in a national market where profit margins are still low. Sanford Bernstein estimates that, while Snow leads the Chinese market on volume, Tsingtao is the market's largest player in value terms, with a 20% share of value sales versus Snow's 17%.
The failed Kingway deal is not the only evidence of CR Snow attempting to close the gap in Guangdong. Late last year, there were local reports that the group was interested in picking up the bankrupt Shaoguan Huoli Beer Co. However, while nothing has been confirmed, the latest reports are that Tsingtao has won a bidding battle for Huoli Beer at auction.
Kingway, then, may still offer CR Snow the best way to get involved in the province.
More broadly, consolidation in general in China's beer market is expected to continue, as brewers seek to expand geographically and also gain enough scale to improve profits. The top four players by volume - Snow, Tsingtao, Anheuser-Busch InBev and Beijing Yanjing - account for around 80% of beer profits in China, but profitability in general is still low, according to Bernstein.
Asahi Group has confirmed that it has signed two joint ventures with an Indonesian company to market and distribute non-alcoholic drinks in the country....
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