After a quiet beginning to 2013, M&A activity is heating up in China’s beer market, as Carlsberg said on Monday it was considering upping its stake in Chongqing Brewery, intensifying the fight among global brewers for production assets there.
Carlsberg might have to pay around $343m for a 20%-stake, or might be obliged to offer $1.2bn for the remaining 70.29%-stake it doesn’t now own, according to Aktiefokus calculations and research.
On Monday Carlsberg said that all trading in the Chongqing Brewery share has been suspended, as the Danish brewer, through its subsidiary Carlsberg Brewery Hong Kong Limited, considered upping its current stake of 29.71%.
A separate stock exchange notification from Chongqing Brewery stated that Carlsberg had five working days to confirm or dismiss a potential acquisition.
Chongqing volumes double those of Denmark
The announcement comes hot on the heels of SABMiller’s Chinese joint-venture Snow Breweries’ recent acquisition of Guangdong-based Kingway Brewery.
Aktiefokus’ research shows that Chongqing Brewery Listed Company and its subsidiaries have a annual production capacity of 24-25m hectoliters (hl), and the company is the market leader in Chongqing Municipality with an estimated market share of around 80%.
Chongqing alone is twice the size of Carlsberg’s home market in Denmark in terms of volume.
With an enterprise value of CNY 8.9bn or $1.43bn, Chongqing Brewery’s production capacity is valued at around USD 57-59/hl before a premium is considered. Excepting the premium, the valuation is in line with SAB’s Kingway-transaction, which was finalized at around USD 59-60/hl.
Carlsberg must pursue $1.2bn buy-out
Currently, the local government holds 20% of the shares, while Carlsberg (as noted above) has 29.71%; the balance of shares are in the hands of minor shareholders.
Carlsberg didn’t specify how large a stake it might acquire and said that no further details would be given until the trading suspension of Chongqing Brewery shares is being lifted, but has previously stated that it aims to acquire 100% of the company.
Furthermore, unless Carlsberg receives a dispensation from China Securities Regulatory Commission (CSRC), it is obligated to put up a general offer for the whole company, when its shareholding passes the 30% threshold, suggesting that Carlsberg has to go for a full-scale acquisition.
If one adds a premium of 20% to the current valuation of Chongqing Brewery, a 20% stake (the government’s holding) should cost around $343m, while a 70.29% pct. stake could cost $1.2bn.
Jacob de Lichtenberg is head of Aktiefokus China. Aktiefokus is a supplier of market and financial information for the professional segment. Aktiefokus is headquartered in Copenhagen, Denmark, but also has a branch office in Chongqing, China. Customers include Danish and Europeans bank analysts and major Danish financial newspapers.