AB InBev to sell South Korean brewer for $1.8 billion
Anheuser-Busch InBev INTB.BR said it agreed to sell its South Korean Oriental Brewery to private equity firm Kohlberg Kravis Roberts & Co for $1.8 billion, allowing the world’s largest brewer to repay debt.
If completed, the buyout would be the biggest private equity purchase in Asia-Pacific excluding Japan since late 2006, when KKR bought Australia’s Seven Network for $2.4 billion, according to Thomson Reuters data.
In a joint statement, the Belgium-based beer company and New York-based KKR said AB-InBev would grant KKR exclusive licenses to distribute certain brands in South Korea, including Budweiser and Hoegaarden.
The deal finally gives a Western private equity firm the chance to put a big chunk of cash to use in Asia after a long deal drought led some buyout shops to downsize or relocate.
AB InBev said it expects the impact on recurring results to be immaterial and expects a non-recurring capital gain of around $500 million. The brewing giant on Thursday announced a better-than-expected increase in quarterly profit.
The deal allows AB InBev to trim its debt, and gives KKR a company with 40 percent share in a $2.8 billion beer market duopoly. No.1 brewer Hite has a 60 percent share.
“The deal is positive for Hite as it reduces the possibility of an all-out marketing war,” said Karen Choi, analyst at Woori Investment & Securities, recalling a damaging marketing war between Hite and OB in 2005-06. “KKR is likely to focus more on profitability than expanding market share.”
KKR, the firm that pioneered the leveraged buyout more than three decades ago, will also have steady cash flows to help pay down its debt used to make the purchase credit report.
OB’s earnings before interest, depreciation, tax and amortization (EBITDA) — a measure of cash flow — were around $200 million, sources close to the deal said previously.
That means KKR is paying around 9 times EBITDA, a multiple analysts said was sensible. AB InBev had initially hoped to get more than $2 billion for the asset.
Given previous acquisitions in the sector commanded multiples of 12 times cash flow or more, the price doesn’t look excessive, said Lee Kyung-min, analyst at HI Investment & Securities.
“It looks like a pretty good deal for KKR,” she said.
A source involved said KKR will pay around 45 percent of the purchase price in cash, a huge equity check for the private equity industry. Buyout firms have typically paid around 25 percent in cash and borrowed the rest.
AB InBev is also offering $300 million in Pay-In-Kind financing for the deal, the source said. The source was not authorized to speak publicly about the financing. The rest of the money will come in loans from banks.
KKR is expected to focus on growing the premium beer business and improving distribution channels within South Korea, the source said, with no interest for now in expanding abroad.