Companies

Tsingtao Brewery foaming over Aussie Foster's

By Bao Chang (China Daily)
Updated: 2010-06-09 09:58

BEIJING - Tsingtao Brewery Company, one of the largest breweries in China, may be considering the purchase of the beer assets of Australia's largest brewer Foster's Group, while domestic food and beverage giant, Bright Food Group, is said to be interested in Foster's wine unit, according to Chinese media. Industry insiders said Bright Food is in a better financial position to actually conclude a deal.

A bartender pours a glass of Foster’s beer at a pub in Melbourne, Australia. With a pro? t ratio of more than 38.5 percent, the beer division accounts for 85 percent of Foster’s total revenue. [LUIS ENRIQUE ASCUI / BLOOMBERG]

Huang Wei, an analyst with China Jianyin Investment Securities, said: "Because of the reasonable price of the acquisition, Foster's wine division is attractive to Bright Food Group."

The transaction price of the wine unit would be higher than Foster's original investment in the business at $5.6 billion, but may prove financially feasible for Bright Food Group, Huang said. Foster's began expanding into wine 15 years ago to diversify its business. Now Foster's is the second-largest winemaker in the world, after Constellation Wines International. However, the wine division suffered declines in recent years.

Shanghai-based Bright Food has been striving to expand its brand portfolio in recent years. On April 1, it offered $1.43 billion for the sugar business of CSR Ltd, Australia's second-biggest building materials maker.

Ge Junjie, vice-president of Bright Food Group, said in April: "Bright Food Group is considering an investment in the top 10 companies around the world in the sugar, wine and milk industries."

Related readings:  Chinese brewer Tsingtao sees net profit leap in 2009  Tsingtao Beer Museum  Bright Food still interested in?Aussie sugar deal

"However, for Tsingtao Brewery, acquiring Foster's beer assets is well beyond its financial means and it's impossible to make an exclusive investment," said Huang.

According to Tsingtao Brewery's first-quarter financial report, the total cash flow of the company is $878 million, while it has been reported that Foster's beer division could be worth more than $11 billion, far outweighing Tsingtao Brewery's total cash reserves. With a profit ratio of more than 38.5 percent, the beer division accounts for 85 percent of Foster's total revenues.

"The high profit of Foster's beer division makes it more difficult for Tsingtao Brewery to make the deal because a profitable division will surely command a premium during the bidding process," Huang said. "A probable result is that Tsingtao Brewery may buy a stake in Foster's beer division. However, without a controlling stake, I am not optimistic about the benefits Tsingtao brewery could get from the deal."

Foster's announced plans last month to split its beer and wine units into separate companies.