AB InBev to Pay $5.8 Billion for Korea’s Oriental Brewery

Anheuser-Busch InBev NV (ABI) agreed to pay $5.8 billion for South Korea’s Oriental Brewery Co. Ltd., regaining control of a company that became the Asian nation’s biggest brewer under KKR (KKR) & Co. and Affinity Equity Partners Ltd.

AB InBev will fund the acquisition with internal resources, according to a statement from the companies today. The Leuven, Belgium-based maker of Budweiser and Corona will receive about $320 million in cash when the transaction is completed.

AB InBev, the world’s biggest beermaker, is buying back a business it sold to KKR in 2009 for $1.8 billion when it sought to cut debt following InBev NV’s $52 billion takeover of Anheuser-Busch Cos. KKR subsequently sold 50 percent of the asset to Affinity. Since then, Oriental Brewery has become South Korea’s largest beermaker and more than doubled earnings, boosted by its Cass brand.

“On the surface, the deal seems odd as they’re paying more than three times for Oriental than what they sold the business for five years ago,” said Pablo Zuanic, an analyst at Liberum Capital. “However, this signals to us they see growth in South Korea — not so much in terms of market growth, but to improve share and drive the penetration of Budweiser and Corona.”

Korea’s beer market has grown about 2 percent a year from 2009 through 2012, the companies said. AB InBev plans to further develop Cass as well as throw its marketing support behind brands including Budweiser, Corona and Hoegaarden in the market.

Market Share

AB InBev shares rose 1.1 percent to 75.97 euros at 2:24 p.m. in Brussels. That gave the company a market value of about 122 billion euros ($165 billion).

AB InBev, created in the brewery world’s biggest merger, has grown to be the largest beermaker through a series of acquisitions, including taking control of Mexico’s Grupo Modelo for $20.1 billion, a deal completed last year. Cost-cutting from that deal helped offset slumps in beer volume sold in the U.S. and Brazil, the company’s biggest markets in the third quarter of last year.

Oriental Brewery has boosted both market share and earnings since it was sold by AB InBev in 2009.

The brewer’s market share in South Korea is about 60 percent, up from about 40 percent in 2009, according to Lee Kyung Shin, an analyst at KB Investment & Securities Co. Hite Jinro Co., which sells liquor, beer and bottled water, has said that Oriental Brewery overtook it in market share in South Korea’s brewery market in 2011.

Ebitda Multiple

Earnings before interest, tax, depreciation and amortization at the maker of OB Golden Lager and Cafri were 529 billion won ($497 million) last year compared with 237.8 billion won in 2009.

The growth in earnings accounts for most of the increased valuation placed on Oriental Brewery compared with the 2009 transaction, according to Trevor Stirling, an analyst at Sanford C. Bernstein in London. Other reasons include a 22 percent appreciation of the Korean won and a “marginally higher” purchase multiple, Stirling said in a note.

Including debt, the deal values Oriental Brewery at about 11.6 times Ebitda, compared with the average 10.1 times for 24 global brewery acquisitions over the past five years, according to data compiled by Bloomberg.

KKR and Affinity had an option to sell the stake back to AB InBev in a deal worth the equivalent of 11 times Oriental Brewery’s Ebitda, according to people familiar with the 2009 transaction. AB InBev sold the business for about nine times Ebitda, people familiar with the deal said at the time.

AB InBev’s purchase would be the second takeover of an alcoholic beverage company this year after Japan’s Suntory Holdings Ltd. agreed to buy bourbon maker Beam Inc. for about $16 billion Jan. 13. Today’s deal is expected to close in the first half of the year, according to the statement. It’s subject to regulatory approval in South Korea.

AB InBev was advised by Lazard Ltd. and Deutsche Bank AG. Citigroup Inc. and Morgan Stanley acted for the sellers.

(Source: Bloomberg)