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 Monday'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 $1.8 billion. That sale was one of the
aggressive divestments forced on InBev after its $52 billion
purchase of U.S. brewer Anheuser-Busch in 2008.
AB InBev shares rose 1.0 percent by 1050 GMT on Monday, making them
the strongest performers in a STOXX 600 European food and beverage
index, which was up 0.3 percent.
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 U.S. 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 $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 $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 take control of
Asia Pacific Breweries, which is active in faster-growing southeast
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
AB InBev had an option buy OB back within five years of the date of
the 2009 sale. Its decision to strike before the July deadline
underscores the hot competition for brewing and liquor assets in the
The deal comes a week after Japan's Suntory Holdings agreed to buy
spirits maker Beam Inc for $13.6 billion. Carlsberg, Heineken NV and
SABMiller Plc have also struck deals in Asia over the past five
years, lured by the region's $258 billion market that is growing
twice as fast as the rest of the world.
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"The longer InBev waited, the more expensive it became and they also
risked leaving room open for other suitors to knock at the door of
the sellers," said one person with knowledge of the original deal.
OB, along with Hite Jinro controls 90 percent of Korea's beer
market, making it relatively easy to raise prices. Its premium
segment could also grow from some 10 percent of the overall beer
market closer to the 20 percent plus of mature western Europe and
However, the OB buy is more of an add-on than a transformational
deal, given AB's size. Its last big purchase was $20.1 billion in
2013 for the remaining half of Mexico's Grupo Modelo.
AB InBev said it would draw on existing liquidity to fund the deal
and would still be able to bring its net debt/EBITDA ratio to below
two times in 2015, though perhaps six months later than planned.
Some analysts said the OB purchase could mark the start of a push by
AB InBev beyond its core markets in the Americas, with other add-on
deals possibly in China. The brewer has a relatively small presence
in Asia Pacific.
BIG PRIVATE EQUITY RETURNS
KKR and Affinity's sale of Oriental Brewery represents a multiple of
over five times the cash they paid, according to a source with
knowledge of the matter, a huge return for a deal of this size and
rewarding the firms with hundreds of millions of dollars in net
For the buyout firms, it was a high risk deal less than a year after
the collapse of Lehman Brothers when there was no clarity on how
long the global recession would last.
Citigroup and Morgan Stanley advised KKR and Affinity and Deutsche
Bank AG and Lazard advised AB InBev, according to a source with
knowledge of the matter.
(Additional reporting by Denny Thomas,
Michael Flaherty and Joyce Lee; editing by Edwina Gibbs and Sophie
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