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AB InBev splashes $5.8bn cash on Cass, buys South Korea’s No.1 brewer

By Ben Bouckley+

20-Jan-2014

Photo: Ayustety/Flickr
Photo: Ayustety/Flickr

Anheuser-Busch InBev will pay $5.8bn for South Korea’s largest beer player Oriental Brewery and says the deal provides a platform to export brands including Cass more widely.

AB InBev hopes to reacquire Oriental Brewery (OB) – which it sold in 2009 to deleverage – from KKR and Affinity Equity Partners in H1 2014, under the terms of a contractual clause in the original sale agreement to KKR. (Each private equity firm now holds a 50% stake.)

Citing Plato Logic data from November 2013, AB InBev said South Korea beer volumes grew 2% from 2009-2012, but during that period premium brands grew by approximately 10% annually.

South Korea’s beer market is expected to grow 13%+ overall between 2012 and 2022, and AB InBev praised “significant momentum” for flag brand Cass since 2006 that has improved OB's performance: the company estimates its EBITDA for 2013 at circa. $500m.

In a 2013 report on the South Korean beer market, Canadean notes that OB and Hite together hold 96% of the country’s beer market, with OB overtaking Hite as market leader in 2011 “due to a superior management system and internal problems within Hite”.

Foreign brands and lower alcohol beers

OB was strengthening its non-metropolitan distribution network, Canadean’s analysts added, which Hite “previously held in an iron grip”, while one general facet of the market is an increase in off-premise (off-trade) sales as consumers benefit from greater beer varieties and lower retail prices.

There is also consumer interest in lower alcohol beers, while increasing foreign travel means domestic Korean consumers now demand more diverse products – Japanese beers Asahi and Kirin are making inroads as Japanese pub-style restaurants, ‘Izakaya’, become more popular.

“AB InBev expects to build on this momentum [for Cass] and will apply its marketing capabilities and brand-building experience to further develop OB and AB InBev brands, including Cass, OB Golden Lager, Cafri, Budweiser, Corona and Hoegaarden,” the US-Belgian brewer said.

Explaining its rationale for the deal, which is subject to South Korean regulatory approval, AB InBev said that since KKR and Affinity partnered OB in 2009, the brewer had grown to be South Korea’s largest.

‘Strengthening our Asian position’ – ABI

OB and AB InBev remained partners from 2009 to date, as the former distributed brands such as Budweiser, Corona and Hoegaarden in South Korea.

Carlos Brito, AB InBev CEO, said his company was keen renew its acquaintance with OB, which will still be led by CEO In-Soo Chang, but will now form part of ABI’s Asia Pacific zone led by regional president Michel Doukeris.

“Oriental Brewery will strengthen our position in the fast-growing Asia Pacific region and will become a significant contributor to our Asia Pacific zone,” Brito said.

He also noted export opportunities for OB brands, and Canadean says Korean beer exports are growing strongly, with success in Mongolia and Australia for OB's Cass and OB Golden Lager.

“In addition, we expect to be strong contributors to the Korean economy and community, fulfilling our global commitment to establish AB InBev as a leading corporate citizen in the markets in which we operate,” Brito added.

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