AB InBev Nears Deal for Sale of SABMiller's Chinese Beer Business

Anheuser-Busch InBev NV is nearing a deal for the sale of SABMIller PLC's Chinese beer business to China Resources Beer Holdings Co., as the Belgian brewer seeks Chinese regulatory approval for its pending acquisition of its biggest rival.

Under terms being discussed, China's government-controlled brewer would acquire SABMiller's 49% interest in the joint venture known as CR Snow, which makes the world's No. 1-selling beer by volume, according to people familiar with talks. Financial terms are still being negotiated, the people said. China Resources and SABMiller have been partners since 1994.

AB InBev had been expected to arrange for the sale of SABMiller's stake in Snow since announcing last year its roughly $108 billion takeover of SABMiller, but people familiar with the company's plan in January said it would try to keep the stake and maintain operational control over the company. Ultimately, it decided to sell rather than keep Snow because holding on to the business could have slowed the regulatory approval process, said a person familiar with the company's strategy.

The approach is similar to the tactic AB InBev pursued in the U.S. and Europe. In the U.S., AB InBev negotiated a sale of SABMiller's interest in MillerCoors LLC to Molson Coors Brewing Co. In Europe, it is in talks to sell Asahi Group Holdings Ltd. rights to SABMiller's Peroni and Grolsch brands.

China Resources had the first option to buy SABMiller's interest in CR Snow. It is unclear if the Hong Kong-listed company would seek another joint venture partner. The Chinese brewer last year decided to focus on beer by exiting its retail and food businesses.

Taking over Snow would make China Resources the largest brewer in China with a 30% market share, according to industry tracker Seema International Ltd. AB InBev has an estimated 18% market share in China, while Tsingtao Brewery has 22%, Beijing Yanjing Brewery Co. has 13% and Carlsberg A/S has 6%.

Bloomberg first reported the pending sale.

Snow's position as the world's biggest beer hasn't added up to big profits for China Resources, which said its beer profits declined 19% to $97.9 million in 2014 from $121.3 million in 2013.

China is one of the world's most challenging beer markets because beer prices are so depressed. Earnings before interest and taxes per hectoliter in China are $2, a fraction of the global average of $19 per hectoliter, according to Seema International.

Industry beer volumes declined by 6% last year in China. The decline marks a reversal from prior years when per capita consumption in the country rose to 45 liters from 7 liters over a 25-year span, according to Deutsche Bank.

Without Snow, AB InBev's China business would continue to focus on its Budweiser and Harbin brands. Volumes of higher-priced beers like those brands fared better last year than lower-priced beers. AB InBev said its beer volumes in China increased 0.4% in 2015, and revenue rose about 8% to $4.2 billion from $3.9 billion in 2014.

During a call with analysts last week, AB InBev Chief Executive Carlos Brito said the company expects the beer industry in China to remain under pressure this year as the economy pressures blue-collar consumers. "We are very happy to see that our business is more skewed towards those segments that are growing," Mr. Brito said.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

March 01, 2016 15:55 ET (20:55 GMT)

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