Beer giants try to gulp Harbin shares
By Jiang Jingjing (China Business Weekly)
Updated: 2004-05-18 11:34

Harbin Brewery Group, China's fourth-largest beer maker, is interested in forming a long-term partnership with Anheuser-Busch Cos (Busch), the world's largest brewer, rather than current shareholder SABMiller.

UK-based SABMiller, a major international brewer, and Busch appear headed for a showdown as they battle for a controlling interest in Harbin.

Busch announced earlier this month it plans to buy 29.1 per cent of Harbin for HK$1.08 billion (US$138.5 million).

The US-based brewer said it will offer Global Conduit Holdings Ltd HK$3.70 (47 US cents) per share. Global, an investment company, wants to sell its 29.1-per-cent stake in Harbin.

Meanwhile, SABMiller is offering HK$4.30 (55 US cents) per share.

The UK-based brewer holds a 29.4-per-cent stake in Harbin, which it bought last July.

Harbin, which dominates the beer markets in China's northeastern provinces, has called SABMiller's offer "a vicious buyout" and "wholly unsolicited."

Harbin is urging shareholders not to sell to SABMiller.

"The board strongly encourages shareholders not to take action at this stage," Harbin said in a recent statement.

Peter Lo, president of Harbin, in recent months has expressed dissatisfaction over his firm's partnership with SABMiller.

"We had hoped SABMiller would offer marketing and technology support, but nothing has happened," Lo said.

SABMiller also holds a 49-per-cent stake in China Resources Breweries, which is one of Harbin's major competitors.

"SABMiller did not turn the competition (between Harbin and China Resources) into some form of co-operation, such as distribution channels," he added.

Harbin, he added, is doing everything possible to derail SABMiller's attempts to buy shares in the brewery, and hopes to "clear the road" for the partnership with Busch.

Johnathan Kirby, SABMiller's finance director responsible for Africa and Asia operations, said Harbin should be able to see the benefits from his firm's proposition.

Graham Mackay, SABMiller's chief executive, said in a statement: "Moving to a majority ownership position is a natural progression in our commitment to China, and its strongly growing brewing sector. Majority ownership and commitment by SABMiller will ensure a successful future for Harbin."

China Resources, SABMiller's joint-venture partner in the Chinese mainland, supports the offer, Mackay added.

"It (the bid) is a long-term strategy for SABMiller. A successful deal would help SABMiller consolidate and clarify the resources of the two companies, and ensure greater profits in the future," Kirby said.

Northeast China is Harbin's primary market, while China Resources is also a major player in central and eastern China.

Louis Wong, research director at Phillip Securities, expects, given the rapid development of China's brewing sector, Busch and SABMiller will fight tooth and nail for Harbin.

To be successful, they may have to bid up to HK$5 (64 US cents) per share, which would value the company at HK$5.02 billion (US$642.66 million).

Wong suggested both companies may be willing to bid higher than that to purchase Harbin.

"Busch's purchase of Harbin shares really upset SABMiller's plans, as SABMiller believed it had a 'special understanding' with Harbin," Wong said.

"Now, Anheuser-Busch has muddied the waters."

Busch may be more willing to cede ownership to SABMiller if the UK-based brewer is willing to up its bid considerably, Wong said.

Busch already holds nearly 10 per cent of Tsingtao, China's second-largest beer maker, and plans to increase its interest to 27 per cent over the next few years.

China's beer industry, which is quickly being consolidated, is the world's largest by volume. The sector, in the past five years, grew , as consumers' spending power increased.

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