SABMiller vs. Anheuser-Busch: The Takeover Battle for Harbin Brewery
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Case Code: BSTR122 Case Length: 23 Pages Period: 2002-2004 Pub Date: 2004 Teaching Note: Available |
Price: Rs.500 Organization: SABMiller Plc., Anheuser-Busch Inc. Industry: Beer Countries: China Themes: Mergers Acquisition and Takeovers |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Harbin Brewery is the fourth largest brewer (in the country). As AB (Anheuser-Busch) and SABMiller already have stakes in the first and second largest brewers, respectively, whoever gets Harbin Brewery will emerge as the market leader in China. So Harbin has become the key in securing a more dominant market share for both players."
- Standard & Poor's Asia Equity Research, in May 2004.
"What you have is a battle between two giants, and the one who wins will be the loser. They will be paying an excessive price for a small brewery. They will really be paying more than double what the brewer is worth."
- Francis Lun, General Manager, Fulbright Securities Ltd., in June 2004.
End of the Battle
On June 03, 2004, SABMiller Plc., the second largest brewer in the world, announced that it had dropped its hostile bid of US$ 550 million (mn) for Harbin Brewery Group (Harbin), China's fourth largest brewer. The move came after the company's arch rival, the US-based Anheuser-Busch Inc. (AB), the world's largest brewer, launched a counter bid of US$720mn on June 01, 2004. AB had recently increased its stake in Harbin to 36%.
The major reason for SABMiller's withdrawal was that it did not consider Harbin to be an asset any more, which the company needed to acquire at any cost. Commenting on this, Graham Mackay (Mackay), Chief Executive, SABMiller, said, "We must evaluate every potential acquisition on its merits. We believe that the AB offer price for Harbin more than fully values the business, even after taking into account the significant synergy uniquely available to us."3 However, SABMiller reiterated its commitment to China's beer market and stated that it intended to make some other acquisitions, if it could get fairly priced assets that would complement its business in China and help strengthen its presence in the country.
Harbin, which from the beginning of the take-over battle in May 2004 had made it clear that it preferred AB to SABMiller as its foreign partner, was relieved by SABMiller's withdrawal. In a statement, Harbin said, "The board welcomes the withdrawal of the SABMiller offer. The board fully supports the Anheuser-Busch offer, the acceptance of which it intends to recommend to shareholders."
SABMiller's withdrawal had put an end to the month-long takeover battle (between May 05, 2004 and June 02, 2004) involving AB and SABMiller, which media reports said was the first takeover war between two foreign companies for a Chinese company till date. With the world's largest brewers fighting it out for Harbin, the company's share value soared to new heights during the period. It increased by 62% to HK$5.95 on June 02, 2003 (See Exhibit I for Harbin's Share Price Chart). The decision of the Chinese government in November 2002 to allow foreign companies to buy shares in listed beer companies resulted in a rush of foreign companies to invest in the industry.
China had emerged as the largest beer market (by volume) in the world in 2002 and was growing at a rate of 6% per annum through 2003 (See Exhibit II, III & IV for world's largest beer markets, top ten breweries and top twenty beer brands). Along with AB and SABMiller, other major international brewers such as Interbrew, Scottish & New Castle and Carlsberg Breweries also showed interest in increasing investments in the industry (See Exhibit V for a note on China's beer industry). In view of this, industry analysts expected the market to witness more takeover battles in the next few years.
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