As an endeavor to strengthen its position in the Asia-Pacific region, Anheuser-Busch InBev SA/NV (BUD), also known as AB InBev, today entered into an agreement with KKR and Affinity Equity Partners to reacquire its South Korean asset – Oriental Brewery. The total value of the deal is $5.8 billion including debt and will expectedly close in the first half of 2014, subject to regulatory approval in South Korea.
Earlier, Oriental Brewery was an asset of AB InBev. In 2009, it was sold out to private equity firm, KKR, for $1.8 billion to relieve some of AB InBev’s debt incurred due to the acquisition of Anheuser-Busch in 2008 for $52.0 billion. Later, KKR divested its 50% stake in the Oriental Brewery to Affinity Equity Partners. As per the deal, AB InBev, which competes with Boston Beer Co. Inc. (SAM), was entitled to the right of re-acquiring the Asian asset within the next five years.
Since then, Oriental Brewery’s strategic initiatives such as cost-cutting measures and generation of huge cash flows have made it the largest brewer of South Korea. The company estimates its earnings before interest, taxes, depreciation and amortization (EBITDA) in 2013 to be about $500 million.
We believe that strong economic growth and increased beer volume in the nation have enabled AB InBev to re-acquire its asset. The company believes that the beer market in South Korea will likely increase by more than 13% during 2012-2022.
The deal marks the second big alcohol transaction of 2014 after Japan-based Suntory Holdings Ltd. agreed to buy Beam Inc. (BEAM) last week for approximately $16.0 billion including debt. In the past few years, the Asia Pacific has seen major consolidation in the alcoholic beverage industry with companies such as Carlsberg, Heineken NV and SABMiller plc signing deals in the region.
According to a BBC article, the Asia Pacific is the world’s biggest beer-drinking continent due to its rapidly growing population and sharp rise in the younger generation of the population. It is believed that Asia’s brewing industry is worth $258.0 billion and the market is increasing two times more than the rest of the world’s growth. The huge growth potential in the market is an outcome of the rapidly developing economies as well as globalization.
Currently, AB InBev carries a Zacks Rank #4 (Sell). A better-ranked brewer is Constellation Brands, Inc. (STZ) with a Zacks Rank #1 (Strong Buy).
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