Carlsberg Seen Thirsting for Tsingtao in Asia : Real M&A

Carlsberg Seen Thirsting for Tsingtao in Asia : Real M&A

Carlsberg A/S (CARLB)’s pursuit of faster growth in Asia may make takeover targets out of Tsingtao Brewery Co. (168) and Beijing Yanjing Brewery Co. (000729) The Danish brewer’s controlling shareholder signaled last month that it will give Carlsberg more leeway to pursue deals. The $15 billion company is eyeing about a half-dozen potential candidates, especially in Asia, including Tsingtao and Yanjing, for a possible purchase, said a person with knowledge of the matter, who declined to be identified as the discussions are private. The Chinese companies each produce some of the most popular beer brands in China, the world’s biggest beer market.Carlsberg holds a distant fourth place in the global beer market by volume after a wave of consolidation led by Anheuser-Busch InBev NV, SABMiller Plc and Heineken (HEIA) NV. In the past five years, Carlsberg largely held back while its bigger rivals took part in deals valued collectively at almost $110 billion, according to data compiled by Bloomberg. Now, Carlsberg is among brewers seeking to expand in Asia, one of the industry’s fastest-growing regions.

For Carlsberg, “they wish to grow their size and they also want to get more growth into the business,” Casper Blom, an analyst at Svenska Handelsbanken AB, said in a phone interview. “Asia would be top of the agenda.”

Deal Leeway

The maker of Tuborg beer and Somersby cider will have greater flexibility to go on a buying spree of its own after the controlling Carlsberg Foundation said it will drop the requirement that it hold at least 25 percent of the share capital in the brewer. The foundation, set up by Carlsberg founder J.C. Jacobsen in 1876 to preserve the Copenhagen-based brewer’s independence, will continue to control at least 51 percent of voting rights.

The charter was last amended in 2007 in a move that allowed Carlsberg to sell shares to help finance its portion of the company’s joint purchase with Heineken of British brewer Scottish & Newcastle for a total of about $15 billion.

Since that purchase in April 2008, Carlsberg announced deals valued at a combined $1.2 billion, according to data compiled by Bloomberg. Of the almost $110 billion of deals completed or announced by bigger competitors, the largest was InBev NV’s $52 billion takeover of Anheuser-Busch Cos. in November 2008, the data show.

Asia Agenda

The consolidation left Carlsberg fourth to the industry’s three biggest brewers by volume as of last year, according to data compiled by Bloomberg. The company’s revenue of 67 billion Danish kroner ($12 billion) last year was about half the revenue of its next-biggest rival Heineken.

The Carlsberg Foundation’s latest move gives the company a chance to catch up on lost ground and expand in Asia, a region where the brewer is seeing the most growth. Organic beer volume, which excludes acquisitions and disposals, rose 7 percent in Asia for Carlsberg in the first half of the year compared with a year earlier. That compares with 3 percent growth for its eastern European business and a 5 percent decline for western Europe. Asia last year accounted for 21 percent of Carlsberg’s total beer volume.

“Asia still remains an important part of our M&A agenda,” Carlsberg spokesman Ben Morton said in an e-mailed reply to questions about the company’s future deal plans. The company offered in March to buy shares in Chongqing Brewery Co. to increase its stake to as much as 60 percent.

Big Deal?

Carlsberg may first seek acquisitions among assets in which it already holds a stake, said Philip Morrisey, an analyst at Berenberg Bank in London. The company has full ownership of breweries or joint ventures in seven Chinese provinces, mostly in the western part of the country, according to its website. Even so, other purchases in existing and new markets are also avenues that Carlsberg is likely to explore, he said.

Changing the charter of the foundation signals that Carlsberg may be considering something bigger than just increasing existing stakes, according to Svenska Handelsbanken’s Blom.

“If they are lucky they will be able to buy one of the larger Chinese companies that might come up for sale in the next couple of years,” Morten Imsgard, an analyst at Sydbank A/S, said in a phone interview. “The most likely candidates are Yanjing Brewery and maybe Tsingtao.”

Attractive Targets

Yanjing and Tsingtao are among the biggest brewers in China and attractive targets for western companies keen to grab a slice of the world’s biggest beer market by volume.

Cui Mei Liu, a Qingdao-based spokeswoman for Tsingtao, didn’t respond to Bloomberg News inquiries. Guang Xue Ding, a Beijing-based spokesman for Yanjing, couldn’t be reached after office hours.

Carlsberg is also considering San Miguel Brewery Inc. in the Philippines, the person familiar with the matter said. The brewery, which sells nine of 10 beers in the Philippines, is attracting suitors keen to boost their presence in emerging markets.

San Miguel Corp. (SMC) — which owns the brewery together with Japan’s biggest drinks maker Kirin Holdings Inc. — has said that several bidders are vying for its 51 percent holding in the company.

“I can’t stop anybody from offering to buy,” San Miguel President Ramon Ang said in a phone message, which was left in response to a request for any further comment. “If their offers are legitimate, I have to take it up to the SMC parent board.”

High Valuations

A takeover of Yanjing may be complicated by the Chinese government’s stake in the company while Tsingtao, with a market value of $10 billion, might be too big and “too big a mouthful for Carlsberg to handle,” according to Imsgard. What’s more, with growth in the Asian beer market driving up valuations of brewers in the region, there’s a risk of overpaying, he said.

“They need to ensure they are not panicking and paying up too much cash to get hold of some of the more interesting players in the region,” Imsgard said.

Tsingtao shares surged to a record last month, while Yanjing’s stock climbed to the highest in more than a year.

Even so, to help narrow the gap with competitors and expand in growing markets, it may be a price worth paying.

“Carlsberg is at the moment lagging behind,” Imsgard said. “It is important to keep up with larger competitors.”

To contact the reporters on this story: Katarina Gustafsson in Stockholm at; Aaron Kirchfeld in London at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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