Club Med Owner Fosun Lured by Tsingtao Beer Guzzlers in China

(Bloomberg) -- Fosun International Ltd.’s investment in Tsingtao Brewery Co. is the latest step in the conglomerate’s strategy of catering to China’s rising middle-class family while also satisfying the government’s push for greater local investments.

Shanghai-based Fosun is paying $847 million to acquire an 18 percent stake in China’s third-largest brewer from Asahi Group Holdings Ltd. In the short run, Fosun can help widen Tsingtao’s distribution network in more than 70 Club Med resorts worldwide; in the long run, Fosun’s track record in restructuring state-owned companies could help Tsingtao optimize efficiency, according to analysts at China International Capital Corp.

"We like the deal, as Fosun will team up with a sound beer brand at a bargain price," CICC analysts Yinmin Gu, Victor Wang and Zhang Shuaishuai wrote in a note on Thursday.

Fosun picked up its stake for HK$27.22 a share, a 32 percent discount to Wednesday’s closing price. Tsingtao shares dropped about 4 percent to HK$38.35 in midday trading Thursday, still above the purchase price.

The deal offers little surprise for those familiar with Fosun, which has been collecting consumer brands at home and abroad in the past few years. The company, which models itself after Warren Buffett’s Berkshire Hathaway Inc., says its diversified investment strategy is centered around “health, wealth, happiness” -- namely consumer, health care and financial assets that could provide an all-around solution to middle-class family needs.

The purchase will give Fosun a presence in a market where increasingly wealthy Chinese drinkers are looking to switch to premium labels. The nation’s upper-middle-class is fueling a boom that will add $1.8 trillion in new consumption by 2021, about the size of Germany’s consumer economy today, according to a report by Boston Consulting Group Inc. and the research arm of Alibaba Group Holdings Ltd. this year.

“The acquisition is in line with their strategy to grow the consumer business that caters to China’s middle class,” OCBC Investment Research analyst Low Pei Han said by phone. Still, it remains to be seen if Fosun “is able to come up with new ideas to cater to more targeted segments, or drive synergy with its existing investment portfolios,” she said.

Fosun’s ability to invest in a state-owned company again may soothe investors’ nerves over an overhang of potential political risks. Billionaire Chairman Guo Guangchang’s brief disappearance in 2015 spooked investors that prompted share prices to fall. This year, the company is among the group of acquisitive firms that were caught up in government scrutiny over outbound transactions.

“This should also be a deal welcomed by the Chinese government; it is an investment in China’s domestic economy which is set to grow," Low said.

Fosun has announced about $21 billion in acquisitions since 2013, according to data compiled by Bloomberg. The company said this week it’s in talks to acquire Italian lingerie maker La Perla. A Fosun-led Chinese consortium agreed to buy French margarine maker St Hubert in July. Here are highlights of the major investments Fosun has amassed in consumer, lifestyle and health:

OverseasDescription% held
Club MedFrench resort operator90.1
Folli FollieGreek fashion brand13.89
Thomas CookUK travel agency11.16
AHAVAIsraeli skin-care100
Tom TailorGerman clothing29.15
Luz SaúdePortuguese hospital chain98.79
Cirque du SoleilCanadian performance art group25
Domestic
Shanghai Yuyuan Tourist MartLocal retailer26.45State-owned
Sanyuan FoodsLocal dairy producer20.45State-owned
SinopharmLocal pharmacy49State-owned
Source: company disclosures

©2017 Bloomberg L.P.

With assistance from Jing Yang de Morel

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