Fast-growing Chinese breweries are likely to top Carlsberg’s list

Time of article published Nov 12, 2013

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Katarina Gustafsson and Aaron Kirchfeld Stockholm and London

Carlsberg’s pursuit of faster growth in Asia may make takeover targets out of Tsingtao Brewery and Beijing Yanjing Brewery.

The Chinese companies produce some of the most popular beer brands in China, the world’s biggest beer market.

The Danish brewer’s controlling shareholder signalled last month that it would give Carlsberg more leeway to pursue deals.

The $15 billion (R155bn) company was eyeing about half a dozen potential candidates, especially in Asia, including Tsingtao and Yanjing, for a possible purchase, said a person with knowledge of the matter, who declined to be identified.

Carlsberg holds a distant fourth place in the global beer market by volume after a wave of consolidation led by Anheuser-Busch InBev, SABMiller and Heineken.

Now, Carlsberg is among brewers seeking to expand in Asia, one of the industry’s fastest-growing regions.

For Carlsberg, “they wish to grow their size and they also want to get more growth into the business”, said Casper Blom, an analyst at Svenska Handelsbanken. “Asia would be top of the agenda.”

The brewer has greater flexibility to go on a buying spree after the controlling Carlsberg Foundation said it would drop the requirement that it hold at least 25 percent of the share capital.

The foundation, set up by Carlsberg founder JC Jacobsen in 1876 to preserve the Copenhagen-based brewer’s independence, will continue to control at least 51 percent of the voting rights.

The foundation’s move gives the company a chance to catch up lost ground and expand in Asia, a region where the brewer is seeing the most growth.

Carlsberg’s organic beer volume, which excludes acquisitions and disposals, rose 7 percent in Asia in the first half from a year earlier. Growth in its eastern European business was 3 percent and there was a 5 percent decline in western Europe. Last year Asia accounted for 21 percent of Carlsberg’s total beer volume.

“Asia remains an important part of our mergers and acquisition agenda,” Carlsberg spokesman Ben Morton said.

In March the company offered to buy shares in Chongqing Brewery to increase its stake to as much as 60 percent.

Carlsberg might first seek acquisitions among assets in which it already held a stake, said Philip Morrisey, an analyst at Berenberg Bank in London.

The company has full ownership of breweries or joint ventures in seven Chinese provinces, mostly in the western part of the country, according to its website.

Blom said changing the charter of the foundation signalled that Carlsberg might be considering something bigger than just increasing existing stakes.

Morten Imsgard, an analyst at Sydbank, said: “If they are lucky they will be able to buy one of the larger Chinese companies that might come up for sale in the next couple of years. The most likely candidates are Yanjing Brewery and maybe Tsingtao.”

Spokesmen for the companies were unable to comment.

A takeover of Yanjing might be complicated by the Chinese government’s stake in the company while Tsingtao, with a market value of $10bn, might be too big and “too big a mouthful for Carlsberg to handle”, Imsgard said.

With growth in the Asian beer market driving up valuations of brewers in the region, there was a risk of overpaying, he warned.

“They need to ensure they are not panicking and paying up too much cash to get hold of some of the more interesting players in the region,” Imsgard said. – Bloomberg

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