HONG KONG -- The burgeoning beer industry in Asia is likely to
undergo significant changes this week, when a decision is expected
to be made regarding Heineken NV's US$4.1 billion bid for one of
the region's prized assets.
Asia is the final frontier for the world's top brewers, and
there is plenty of room to grow: Anheuser-Busch InBev NV of
Belgium, U.K.-based SABMiller PLC, Dutch brewer Heineken and
Carlsberg A/S of Denmark command only 23% of the industry's profits
in the Asian-Pacific region but more than 60% of the sector's
profits in every other region of the world, according to Bernstein
Research.
"The one market where there could still be some consolidation is
Asia," said Robert Jan Vos, a beer-industry analyst with ABN Amro
in Amsterdam.
With sales lackluster in Europe and North America, major brewers
are increasingly looking to expand throughout Asia, competing with
local brands that have dominated the beer industry for decades.
China and its 1.3 billion consumers have been the focus of most
brewers' expansion. But Southeast Asia, and its rapidly growing
economies, are also getting a close look amid a swelling middle
class. Last year, Vietnam was Asia's highest-growth beer market by
consumption.
Asia Pacific Breweries Ltd., Heineken's takeover target, is one
of the fastest-growing and most profitable beer companies in Asia.
Through popular beer brands like Tiger and Bintang, APB holds as
much as 50% market share in Indonesia, Malaysia and Singapore,
according to data provider Euromonitor, and has a strong presence
in high-growth economies like Vietnam. It is one of themost
attractive assets up for grabs in Asia. APB's operations span 30
breweries, 40 brands and 14 Asian countries.
"There are very few game-changing assets available" in Asia,
says Harald Harvey, managing director in Asia for SABMiller.
Heineken's $40-a-share offer for the stake of its joint-venture
partner, Fraser & Neave Ltd., in Asia Pacific Breweries was a
defensive move to protect the Dutch brewer's turf, coming after
companies linked to Thai tycoon Charoen Sirivadhanabhakdi bought a
22% stake in the Singaporean conglomerate and an 8.6% stake in APB.
Meanwhile, Japan-based Kirin Holdings Co. -- which acquired a 15%
stake in F&N in 2010 -- is considering a bid for the group's
soft-drink and dairy assets.
F&N has postponed a decision on Heineken's offer until
Friday.
If Heineken's bid fails, it limits the No. 3-ranked brewer's
access to some of the fastest-growing beer markets in the world,
where nearly two-thirds of the world's growth in beer consumption
will come from over the next five years, according to Euromonitor.
But if Heineken succeeds, the company's growing presence in Asia
could make it harder for other major brewers to gain traction in
key markets.
"If Heineken has full control, it will market its brands more
aggressively and increase its share, making it harder for others to
penetrate these markets," says Goh Han Peng, an analyst at DMG
& Partners Securities in Singapore.
SABMiller, the world's second-largest brewer by volume after AB
InBev, has one brewery in Vietnam and is looking to expand further.
Carlsberg, the world's fourth-largest brewer, operates in six
countries where APB has a footprint: China, Cambodia, Malaysia,
Singapore, Sri Lanka and Vietnam.
Brewers are targeting the Asian-Pacific region after spending
tens of billions of dollars in recent years snapping up assets in
other parts of the world. SABMiller acquired Foster's of Australia
last year.
In Asia, beer-industry profits are still playing catch-up with
more established markets, dragged down by low unit revenue in China
and India. The Asian-Pacific region accounted for 35% of global
beer volume and 26% of revenue but only 17% of profits in 2010,
Bernstein estimated.
Part of the problem is that companies in the region tend to be
family controlled, or, in the case of China and Vietnam,
government-controlled. Many already have signed joint ventures with
big foreign brewers or sold them minority stakes, making it tougher
for another major brewer to step in.
Of the Big Four, SABMiller derived the biggest share of its
profits, 15%, from the Asian-Pacific region in 2010, after
adjusting pro forma for the company's acquisition last year of
Foster's, Bernstein estimated. Carlsberg, Heineken and AB InBev
generated 12%, 6% and 1% of their profits in the region in 2010,
respectively, according to Bernstein.
The shortage of major assets for sale is pushing up valuations
in the beer industry. Heineken's offer values APB at 21 times
earnings before interest, taxes, depreciation and amortization,
according to UBS. This is higher than the 15.8 multiple that AB
InBev is paying to buy out the half it doesn't already own in Grupo
Modelo SAB of Mexico in a $20 billion deal announced last month,
and far above the 12.6 average multiple paid in dozens of global
beer deals since 1999, UBS says.
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