AB InBev buys OB for US$5.8b to return to strong Asian market
Print Edition
Anheuser-Busch InBev SA, the world’s biggest brewer, agreed to buy back South Korea’s Oriental Brewery Co Ltd (OB) for US$5.8 billion including debt, returning to a large Asian market at a time of strong industry growth across the region.
The sale by KKR & Co and Affinity Equity Partners will be Asia’s biggest ever for private equity, excluding flotations, and rewards them with returns of more than five times their investment.
However AB InBev can claim with yesterday’s deal to be paying a reasonable price for a business that has grown in value in the five years since it was sold for US$1.8 billion. That sale was one of the aggressive divestments forced on InBev after its US$52 billion purchase of US brewer Anheuser-Busch in 2008.
Andrew Holland, analyst at Societe Generale, said the price was pretty fair considering OB’s improved profitability.
“AB InBev is looking for areas of growth faster than in its existing business,” he said. Referring to the brewer’s two largest markets, he added: “I’m cautious on the US and there are question marks over underlying growth in Brazil beyond the World Cup and weather bounce expected in 2014.”
OB, with top-selling lager Cass, has become Korea’s largest brewer with a 60 percent market share. It raised its core profit (EBITDA) to some US$500 million last year — 2.3 times greater than when KKR and Affinity acquired it.
Korea is a relatively mature beer market, with 40 liters drunk per capita per year, on a par with China. Growth was 2 percent per year from 2009 to 2012, and seen at a little over an annual 1 percent for the subsequent 10 years.
The overall price of AB InBev’s deal — excluding a US$320 million cash payment it expects to receive — is some 11 times OB’s EBITDA. That’s well below the 16 times Heineken paid in 2012 to buy over Asia Pacific Breweries, which is active in faster-growing southeast Asia.
The more modest multiple may also reflect the fact that KKR and Affinity have probably already made many of the sort of cost cuts that AB InBev typically seeks from its acquisitions.
Analysts said AB was likely to find further savings from cheaper procurement of raw materials due to its global scale and by pushing its higher-margin premium brands, such as Budweiser and Stella Artois via OB in Korea — as well as selling OB’s beers outside Korea.
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