AB Inbev/SABMiller potential merger could trigger Yanjing Brewery SOE reform
A merger between AB Inbev [EBR: ABI] and SABMiller [LON: SAB], the world’s two largest brewers, could trigger state-owned enterprise reform within Beijing-based beer company Yanjing Brewery [SHE:000729], according to two bankers and two industry sources.
Talks of consolidation in the beer space has kept the market abuzz, after Heineken [AMS:HEIA] rebuffed an approach from SAB Miller in September, and AB InBev was reported to be speaking to banks about raising USD 122bn to buy SABMiller.
Against this backdrop, it could be time for Yanjing Brewery to revisit approaches from foreign strategics which it has repeatedly received for several years, the bankers and industry sources said. Carlsberg could be interested in a stake in Yanjing, as reported by a local paper in Denmark in 2013.
Beijing SASAC is Yanjing Brewery’s largest shareholder with a more than 50% stake.
Yanjing did not respond to resquests seeking comment.
The potential mega-deal could intensify pressure on Yanjing’s ambition to increase its market share in China, the two industry sources said. Meanwhile, China is pushing forward its state-owned enterprises reform campaign. The confluence of these two could be an incentive for Yanjing to start a strategic review, the four agreed.
Many SOEs like Sinopec, China Communications Facilities Services Corporation and China National Tire & Rubber have embarked on apparent reforms that have often involved the entry of private investors into industries previously dominated by the state.
The top five beer companies in China – China Resources Snow Breweries, Tsingtao Brewery, AB Inbev, Yanjing Brewery and Carlsberg – all have their own strongholds and find it hard to penetrate each others’ territories, the first banker and the first industry source noted. These five dominate the beer industry in China with a combined market share of 80%, according to a local news report citing data from the China Alcoholic Drinks Association (CADA).
Yanjing has a large market share in its home market of Beijing as well as in Guangxi province, according to its annual report. It is also working hard to reinforce its presence in other regions including the provinces of Guangdong, Fujian, Yunnan, Sichuan and Xinjiang Uygur Autonomous Region.
The talked about combination between AB Inbev and SAB Miller could make it even harder for Yanjing to reinforce its presence in these regions, the first banker said.
SABMiller has a 49% stake in China Resources Snow Breweries, and a merger with AB Inbev will give the group 37% market share of China’s brewery sector, according to a previous report by this news service.
It could be hard for Yanjing to sustain sales growth if it only fights on its own, according to the first banker and the two industry sources. Yanjing Brewery reported a 16.16% year-on-year drop in third quarter sales.
The industry sources also noted that China’s beer industry itself is facing a growth crunch. The annual growth of Chinese beer consumption has slowed to single digits, which could worsen even further in the coming years, one of them said.
Yanjing has a market cap of CNY 22.24bn