The Market Share Game: Anheuser-Busch Battles SABMiller to Acquire China’s Harbin Brewery China’s…

The Market Share Game: Anheuser-Busch Battles SABMiller to
Acquire China’s Harbin Brewery

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China’s beer industry is the world’s fastest growing and
second largest, after the U.S. It is highly fragmented and offers many
potential acquisition targets. At the end of 2000, there were about 470
independent brewers; however, industry consolidation reduced the number from
almost 800 in 1992. The level of concentration is still relatively low, with
the top 10 brewers producing about 30% of the country’s total annual
production. This compares to the U.S. where Anheuser-Busch alone controls about
one-half of the American beer market. Foreign brewers found it nearly
impossible to achieve profitability in the highly price competitive Chinese
market and scaled back their operations in the late 1990s. However, China’s
brewing industry has entered a new round of acquisitions ever since
AnheuserBusch, the world’s largest brewery, announced in October 2002 plans to
increase its share in Tsingtao Beer, China’s largest brewery, from 4.5% to 27%
by 2006. The difference this time from the merger boom in the early 1990s is
that foreign breweries are concentrating on building market share in local beer
markets rather than trying to roll out their international brands. On July 12,
2004, Anheuser-Busch acquired 99.7% of the issued shares of Harbin Brewery
Group Ltd. for $720 million, by offering to pay a 30% premium over the next
highest bid. The takeover of Harbin began with the May 2, 2004, announcement by
AnheuserBusch that it completed its purchase of approximately 29% of Harbin for
$139 million. This announcement triggered a hostile takeover bid for Harbin by
its largest shareholder, SABMiller, the world’s second largest brewer, which
had a 29.6% stake in Harbin. The SABMiller bid was the first hostile takeover
attempt of a publicly traded Chinese company by a foreign firm. With the Harbin
takeover, Anheuser-Busch’s market share would be more than twice that of any
other competitor in northeastern China.

Conceding to Anheuser-Busch, SABMiller agreed to sell its
share of Harbin to AnheuserBusch. SABMiller indicated that it would receive
$211 million from Anheuser Busch for its stake in Harbin, which it had acquired
in July 2003 for $87 million. SABMiller representatives said publicly that
Anheuser-Busch placed a greater value on Harbin’s growth potential than they
did and that Harbin was not of great value to their growth strategy in China.
Reflecting the extent to which existing Chinese brewery assets have increased
in recent years compared to the cost of starting up a new brewery, SABMiller
announced in late 2004 its intention to invest $82.2 million in 2005 to build a
new brewery in affluent Guangdong in southeast China.

Case Study Discussion Questions

 1. In your judgment, why was Anheuser-Busch willing to pay
more than SABMiller for Harbin? Be specific.

 2. In what way did SABMiller gain from its failure to
acquire Harbin in the short run? How might it lose in the long run? Explain
your answer.

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