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24 November 2017

Who will buy Asahi’s stake in Tsingtao?

It does not seem as if lots of potential buyers are queuing outside Asahi’s door. Although it has been an open secret for the better part of this year that Japanese brewer Asahi seeks to sell its 20 percent stake in Tsingtao, the number two brewer in the country, only two competitors have come forward so far: China Resources Beer, China’s number one brewer, and Carlsberg, which ranks fifth.

The reason for the cautious response is that being a minority shareholder in a state-backed brewer does not give you much of a say in the company.

Asahi deliberately ignored Anheuser-Busch’s experiences when it bought the US brewer’s 20 percent share in Tsingtao for USD 670 million in 2009. The stake only came on the market after the takeover of Anheuser-Busch in 2008 when an anti-trust ruling forced AB-InBev to sell it.

At the time, Asahi must have thought that the investment would improve its China operations. Consequently, collaborating with Tsingtao became central to its strategy.

Media say that Asahi began providing technical assistance to its Chinese partner and started contract manufacturing Tsingtao-brand beers at its breweries, trying to raise the capacity utilisation and rein in losses.

Another goal was to push its signature Asahi Super Dry beer in China by making the most of Tsingtao’s sales network.

The Super Dry plan barely got off the ground as tensions between the two countries rose after the Japanese government purchased three of the Senkaku Islands, which are known as Diaoyu in Chinese and are claimed by Beijing, in September 2012. Also, in June of that year, Tsingtao suddenly announced it would enter into a business partnership with Asahi’s rival Suntory.

Commentators say that Tsingtao appears to have been far shrewder than its Japanese partners. It was able to acquire plants and other assets from Suntory before terminating the alliance. Now, Asahi has concluded that the partnership is no longer of any benefit.

In the end, Tsingtao will be able to walk away as the winner from both deals.

Tsingtao’s market value has more than doubled since 2009. If Asahi were to sell its entire stake, it could fetch nearly USD 1.75 billion, it was reported.

However, Tsingtao has also been affected by the overall decline in domestic beer consumption since 2013. Nevertheless, Tsingtao still commands an estimated 20 percent share of the world’s largest beer market, making the opportunity hard to ignore for its competitors.

China’s beer market may be huge, but it’s also been in desperate need of consolidation. If China Resources Beer were successful, it could create an alliance controlling a market share in excess of 40 percent.

Still, any potential buyer will have two key targets: getting Tsingtao to perform better and finding synergies with its own operations.