Anheuser-Busch clinches Harbin bid

Anheuser-Busch won the takeover battle for China's fourth-largest beer maker on Thursday after arch-rival SABMiller withdrew from bidding for Harbin Brewery, sources familiar with the situation said.

Anheuser-Busch offered $720 million or HK$5.58 a share for the Chinese brewer this week, trumping a HK$4.30 hostile bid last month from SABMiller.

"SABMiller will not raise its bid. This is final. A-B wins," one source said.

SABMiller's retreat ends the first takeover battle between foreign companies for a big Chinese firm, although the London- and Johannesburg-listed firm does not leave empty handed.

SABMiller, which last year bought 29.4 percent of Harbin before their partnership soured, stands to earn a profit of $124 million from selling its stake to Anheuser-Busch.

Both global companies want a bigger share of China's beer market, which is the world's largest by volume and is growing at six percent a year.

SABMiller, Anheuser-Busch and Harbin declined comment.

Trading in Harbin Brewery shares, which had traded as much as nine percent above Anheuser-Busch's offer price on hopes of a bidding war, were suspended by the Hong Kong stock exchange on Thursday.

Harbin said this week it welcomed Anheuser-Busch's offer and would recommend that shareholders accept it. Harbin said it preferred Anheuser-Busch as its foreign partner.

A rich offer
Analysts have said the Budweiser brewer's offer for Harbin is rich at 35 times forecast 2004 profits for Harbin, a regional player in China's northeast.

"It's the wise choice," Herbert Lau, research director at Celestial Asia Securities, said of SABMiller's retreat.

"The takeover battle derailed from the underlying fundamentals. The share prices of the other brewers will settle down," he said.

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Hong Kong-listed Chinese beer makers Tsingtao Brewery and Guangdong Brewery have rallied during the battle for Harbin. Tsingtao shares fell 3.3 percent, but Guangdong rose one percent.

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Anheuser-Busch this week raised its stake in Harbin from 29 percent, and now controls 37 percent of Harbin shares, which would have made a challenge more daunting for SABMiller.

Despite the surprisingly high offer from Anheuser-Busch, some investors had been betting on a counterbid by the London-based firm. Harbin shares hit a record HK$6.10 on Wednesday before closing at HK$5.95, a gain on the day of 16.67 percent.

Fragmented market
Anheuser-Busch, SABMiller and other global firms such as Heineken and Interbrew are pouring money into China despite a fragmented and fiercely competitive market where a 640 ml (22.5 fl oz) bottle costs as little as 12 U.S. cents.

They are counting on further consolidation and rising incomes to lift prices and profits. They see vast potential in a country where the average person drinks just 19 liters (four gallons) of beer per year, compared with 50 liters in Japan and 84 liters in the United States.

Anheuser-Busch owns 10 percent of Tsingtao Brewery, China's largest, a stake it plans to increase to 27 percent over the next few years.

SABMiller owns 49 percent of China Resources Breweries (CRB), the country's second-largest beer maker.

Some industry watchers said Harbin would be more valuable to SABMiller than to Anheuser-Busch, because CRB and Harbin control a combined 60-65 percent of the market in northeast China, which would give SABMiller pricing power that has been a rarity in China's cut throat beer sector.

Anheuser-Busch's win is likely to intensify the local rivalry.

"Competition will intensify in China's northeastern market. Ultimately, it is negative for Harbin and CRB. It will be difficult to improve their profitability" said ING analyst Lilian Leung.