Tsingtao Discount Shows Firm Competition in China Beer Scene

(Bloomberg) -- Tsingtao Brewery Co.’s shares headed for their biggest decline in almost two years after Asahi Group Holdings Ltd. agreed to sell its stake in the Chinese beermaker at a 32 percent discount.

Japan-based Asahi will sell its 20 percent holding to Fosun International Ltd. and Tsingtao for HK$27.22 a share, compared with Wednesday’s closing price of HK$40 per share. Tsingtao stock dropped as much as 7 percent to as low as HK$37.20 Thursday, still well above the sale price. Fosun shares rallied 8.7 percent, the most since Oct. 25.

Investors may see the discount as warranted given mounting competition in China’s mid-price beer market, according to analysts. Tsingtao’s market share puts it behind China Resources Beer Holdings Co. and Anheuser-Busch InBev, according to Euromonitor International.

Tsingtao Discount Shows Firm Competition in China Beer Scene

A recent surge in Tsingtao’s stock may also help explain the discount. The shares gained 26 percent this month through Wednesday to a two-year high amid speculation over a possible deal. Asahi, Japan’s largest brewer, has been reorganizing its business portfolio in its bid to become a player in the global beer industry. It has also been selling assets to help pay for its $11 billion buying spree in 2016 when it scooped up Central and Eastern European assets from Anheuser-Busch InBev and SAB Miller.

Chinese conglomerate Fosun will pay about $847 million for Asahi’s stake, and Tsingtao will put up approximately $94 million for the rest. Asahi bought its Tsingtao stake from Anheuser-Busch for $667 million in 2009, and the investment has not played out to Asahi’s taste. Tsingtao did not make or sell at large scale Asahi’s top-selling “Super Dry” brand. President Akiyoshi Koji said in a January interview that “ownership without control doesn’t make much sense.”

Asahi fluctuated between gains and losses in Tokyo trading Thursday, and closed 0.7 percent higher in Tokyo trading. The company expects to book about a 6.3 billion yen profit ($56 million) from the sale in the first quarter of fiscal year 2018, company spokesman Takuo Soga said.

Here’s what analysts who cover Tsingtao and Asahi are saying about the deal:

Tsingtao Brewery

  • Goldman (Lincoln Kong): Tsingtao to see benefits from collaboration with Fosun in areas including export business, premium branding and management incentives.
    • Sees no progress on industry consolidation as no existing players were involved in the deal
    • Expects Tsingtao to continue to lose market share in China given Anheuser-Busch’s leadership in the premium segment and China Resources Beer moving from the mass to the mid-end segment
  • Nomura (Scott Hong): Fosun won’t create regional or brand synergies for Tsingtao. The completion of this deal will accelerate a change to its board of directors and company strategy.
  • UBS (Christine Peng): Fosun’s stake will lead to improved capital structure

Asahi Group Holdings

  • SMBC Nikko (Naomi Takagi): Stake sale probably driven by Tsingtao shares "looking less attractive" amid slower growth and tougher competition in China’s beer market. Should be seen as positive given management’s “swift decision” to reorganize assets plus the gain on sale.
  • Nomura (Satoshi Fujiwara): Low sale price may be because competition has become fierce in the mid-price beer segment where Tsingtao’s strength lies.
    • Asahi selling shares to minority shareholders with limited influence on Tsingtao’s management
  • Goldman (Keiko Yamaguchi): “If this latest sale is completed, it would largely conclude a string of recent major divestments and would likely also be the end of Asahi’s reorganization of its business portfolio.”
    • Expects Asahi to focus next on growth strategies to expand its overseas business
  • Credit Suisse (Charlie Chen): Disappointing price mainly due to Asahi’s urgent need for cash to repay the debt for its acquisition of eastern European breweries in late 2016

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