A-B InBev Steps Up Asian Beer Market Battle

After Heineken's acquisition of Asia Pacific Breweries in 2012, Anheuser-Busch InBev clearly wants a piece of the Asian action.

Jan 23, 2014 at 10:26AM

Despite warnings from a number of large consumer-goods companies, including European heavyweight Unilever, emerging market demand for some goods still looks strong. In any case, good enough for Anheuser-Busch InBev (NYSE:BUD) to get back into with its recent repurchase of South Korea's Oriental Brewery. Key rival Heineken (NASDAQOTH:HEINY) has also been working on increasing its presence in Asia, one of the fastest-growing beer markets, having purchased Asia Pacific Breweries in 2012. What does Anheuser-Busch InBev's pending acquisition mean for the industry?

Buyback brewing
It seems as if all the major brewers are trying to cash in on the Asian beer market. This is not surprising, considering its formidable growth over the last few years. Asia's $258 million beer market is reportedly growing around twice as fast as the rest of the world and so far shows no signs of slowing down.

The continent overtook Europe and the Americas in total amount consumed as early as 2007, although consumption per capita has not yet caught up. Interestingly, beer consumption seems to be correlated with growing prosperity in Asia. People drink more beer when things are going well economically, while consumption of spirits seems to continue no matter what the economic backdrop is.

So, it comes as no big surprise that the world's largest brewer wants a piece of the action. Investors have been wondering for some time now what the company had planned for its cash pile, a question which now seems to be partly answered. In 2009, in an effort to pay off debt and boost the company's financial position, it sold Oriental Brewery to private equity firm KKR, but is now intent on repurchasing the company to increase its competitive edge in Asia.

The deal is currently worth around $5.8 billion, which is around three times what the company originally sold Oriental Brewery to KKR for. However, under KKR's leadership, Oriental Brewery has become South Korea's largest beer brewer and has more than doubled its earnings. Clearly, A-B InBev sees lucrative opportunities for growth.

Market consolidation: Heineken and SABMiller
Anheuser-Busch InBev is not the only company looking to expand its footprint in Asia. As mentioned above, in 2012 Heineken completed the acquisition of the remaining part of Asia Pacific Breweries it did not yet own. The Asian brewer has some very strong brands in the region, especially Tiger, which saw brand volume skyrocket 32% during 2012, driven largely by very solid demand in Vietnam and China. China volume grew by some 27%, with Tiger and Heineken as the top sellers.

The global beer market is becoming consolidated to such a degree that some analysts believe the big fish may start merging at some point. For years, commentators have speculated on the possibility of a merger between the world's No. 1 and No. 2 brewers, Anheuser-Busch InBev and SABMiller (NASDAQOTH:SBMRY). The reacquisition of Oriental Brewery has once again started the discussion of its feasibility.

A merger with SABMiller would supply Anheuser-Busch InBev with access to Africa, one of the fastest-growing markets in the world. SABMiller has an extensive portfolio of local beers in the area, which are generally the preferred drinks in Africa. The deal would certainly be a massively expensive one, but according to some, A-B InBev can throw up to $100 billion at the merger. Yet money might not be the problem. Rather, such a venture would almost certainly run into antitrust issues, as one corporation would account for some 46% of the global beer industry.

The bottom line
The battling for the burgeoning Asian beer market is heating up. The world's No. 1 beer brewer, Anheuser-Busch InBev, announced it will be buying back South Korea's Oriental Brewery, after having previously sold it to KKR. The move will presumably bolster the brewer's position in the region, which accounts for much of the industry's growth. It remains to be seen how much the new acquisition will contribute to bottom-line growth, but a strong presence in Asia should provide some upside for A-B InBev shares.

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Fool contributor Daniel James has no position in any stocks mentioned. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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