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INDUSTRY VOICES: HEAD OF AKTIEFOKUS CHINA, JACOB DE LICHTENBERG

Carlsberg signals Chinese strategy shift and 'Top 3' ambition

By Jacob de Lichtenberg , 10-Dec-2012
Last updated on 11-Dec-2012 at 13:40 GMT

For Chinese beer market followers, one of the most interesting developments over the last fortnight was Danish brewer Carlsberg’s announced strategy shift and expressed desire to acquire one of the nation's top three domestic brewers.

According to Danish newspaper Borsen, Denmark-based Carlsberg is ready to look at a possible acquisition of either Shandong-based Tsingtao Brewery or Beijing Yanjing if the government puts either firm up for sale.

Furthermore, Carlsberg is expanding its West China focus strategy and is looking to acquire production capacity in East of China, closer to the big cities like Shanghai and Beijing, where the premium and sub-premium brands like Carlsberg, Kronenbourg and Tuborg thrive.

This follows earlier reports that Carlsberg was looking at making the Zhejiang based Ningbo Daliangshan brewery its ‘gateway’ to East China market by letting the brewery produce Carlsberg brands on Licence.  Ningbo Daliangshan is a part of Chongqing Brewery, in which Carlsberg owns a 29.7% stake.

Carlsberg’s latest strategy refinement and eagerness toward acquisitions just show how important the Danish brewery group sees China in its future global strategy positioning, as its developed West Europe region performs sluggishly.

Tsingtao or Beijing Yanjing?

While a possible acquisition of China’s second-largest brewer, Tsingtao, is probably less likely, due to its scale and the fact that Japan's Asahi Breweries owns a 20% stake, an acquisition of the completely Chinese owned Beijing Yanjing looks more likely, either by Carlsberg or another large beer producer.

Yanjing is the biggest and actually the last completely independent major brewery group in China. Everyone in the brewery industry is talking with Yanjing all the time, to determine if there are possibilities to do something with them.

If one of the large brewery group enters into a corporation with Yanjing, this will change the balance of the industry. But Yanjing is not for sale. Everyone is trying to get a foot in there, but the company has a very strong and passionate chairman.

Generally speaking within China, the government is more and more inclined to dispose of its shareholdings, so we just have to wait and see what will happen.

This is effectively what Carlsberg director of Asia, Roy Bagatini, told Borsen last week.

Beijing Yanjing's market strengths

Market data compiled by Aktiefokus China shows that Beijing Yanjing is especially strong in provinces like, Beijing, Guangxi, Fujian, Inner Mongola, Jiangxi and Hunan, all areas that would complement Carlsberg’s West China focused strategy very well.

An acquisition of Yanjing already became a theme last year, when the government changed the status of a large portion of the shares, which is owned by the partly state-owned Beijing Enterprise Holding, to ‘non-restricted’.

Earlier research distributed to customers of Aktiefokus shows that government controlled Beijing Enterprise Holdings owns 80% of Yanjing Beer, which its owns 57.48% of the listed company, Beijing Yanjing Brewery.

According to Aktiefokus’ walk through of Beijing Yanjing’s annual report for 2011, Beijing Enterprise Holding is allowed to sell a stake of up to around 45%, as some 12-13% of the shares still are subject to restrictions.

Thus an opportunity for Carlsberg, or any other international brewery, exists to acquire a stake of up to 29.99%; when acquiring more than 30%, a company must make an offer for the entire company.

Calculations and estimates made by Aktiefokus shows that a potential buyer might have to put up almost RMB 7bn ($1.1bn) for this 30% stake, when looking at it on an enterprise value basis and with an assumption of a premium of 30%.

For Tsingtao, the price might be above RMB 17bn for a stake of 30%.

On a production capacity basis, both possible acquisitions look costly, as Aktiefokus estimates an Enterprise Value price of around $50 per hectoliter of production capacity at Beijing Yanjing and around $84 per hectoliter at Tsingtao.

*Carlsberg Image: Picture Copyright, Roger Wollstadt/Flickr

ABOUT AKTIEFOKUS

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.

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