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
Excerpts
Sabmiller and Harbin - Conflict Of Interests
In 2002, when China emerged as the world's largest beer market (by volume), SABMiller moved quickly to strengthen its operations in that country. In June 2003, SABMiller acquired a 29.6% equity stake (later diluted to 29.4%) in Harbin for HK$ 675 mn (approximately US$ 87 mn), from China Enterprise Development Fund (CEDF), replacing the latter as Harbin's largest shareholder. Commenting on this, Mackay said, "We are delighted to have made this strategic investment in Harbin, one of the most successful and profitable brewers in the Chinese market. The transaction represents a further step in SABMiller's strategy in China of focusing on local brands to build regional leadership, and strengthens our position in the world's largest beer market." Peter Lo (Lo), CEO, Harbin, said, "We are very pleased to be partnering with one of the world's leading brewing groups, which has the ability to bring significant value to Harbin. Its brands, expertise and experience in developing countries are all extremely valuable to us..."
The Takeover Bid
AB's announcement of investment in Harbin came as a sudden blow to SABMiller. SABMiller realized the need to act fast, because with AB acquiring roughly equal stakes in Harbin, it would be difficult for it to leverage Harbin's leadership in the North and North Eastern regions to its advantage. Nigel Fairbrass (Fairbrass), the spokesman for SABMiller, said, "This town (Harbin) is too small for both of us." On May 05, 2004, SABMiller launched a takeover bid of US$ 550 mn for Harbin stock with independent shareholders (accounting for about 41.5% stake in Harbin), at HK$ 4.30 per share, a 33% premium over Harbin's closing price of HK$ 3.22 on April 30, 2004 (See Table III). The offer was conditional on the acceptance leading to the company holding more than 50% of the issued share capital of Harbin. Commenting, Mackay said, "Our offer represents outstanding and certain value for current Harbin Brewery shareholders and delivers unique benefits to Harbin Brewery through co-operation with our existing operations in China (CRB)...
The Battle
The opposition to SABMiller's takeover bid first came from Harbin. In a statement released on the same day of the offer, the Harbin management shunned the offer on the grounds that it was 'unsolicited' and an 'unduly hasty response' to the termination of the SIA by Harbin. Harbin strongly advised its shareholders to take no action on SABMiller's offer in haste as the company's board was considering better options. At the same time, Harbin's management welcomed AB's acquisition of 29.1% in the company and stated that it preferred AB to SABMiller as its major shareholder, as it believed that Harbin was unlikely to gain any significant benefits under SABMiller's control. In other words, it urged shareholders to spurn the offer. SABMiller challenged the Harbin board's open statements recommending shareholders not to take action on the bid and vociferously preferring AB. The company's spokesman, Fairbrass said, "The Harbin management team needs to explain why they think our offer undervalues their business..."
Who Benefits From The Deal?
Though AB emerged as the winner in the takeover battle, analysts called AB's offer "irrational" and "more of ego than sense," as there was no obvious synergy to AB from the deal. In the light of AB's announcement that it would not combine the operations of Harbin with Tsingtao, and with both AB and SABMiller competing in Northeast China (through Harbin and CRB respectively), analysts expected profit margins, already very low in China, to get much thinner. Commenting on this, Lilian Leung, analyst, ING, said, "Competition will intensify in China's North Eastern market. Ultimately, it is negative for Harbin and CRB. It will be difficult to improve their profitability." However, some analysts supported AB's move saying that it was important for AB to have a strong hold in China, especially because of change in customer preferences towards wine and distilled spirits and the saturating market for beer in the US...
Exhibits
Exhibit I: Share Price Chart of Harbin (September 2002 - June 2004)
Exhibit II: World's Ten Largest Beer Markets by Volume Produced (2002)
Exhibit III: World's Top Ten Brewers (2002)
Exhibit IV: Top Twenty Beer Brands in the World (2002)
Exhibit V: The Beer Industry in China
Exhibit VI: Financial Highlights of Harbin (2001-2003)
Exhibit VII: Financial Summary - Anheuser-Busch Companies
Exhibit VIII: Sabmiller's Major Brewery & Beverage Brands
Exhibit IX: Sabmiller's Financial Highlights (1999-2003)
Exhibit X: Securities Law of the People's Republic of China - The Takeover Regulations for Listed Companies
Exhibit XI: Anheuser-Busch Share Chart (July 2003 - June 2004)
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