Western brewers have traditionally found it difficult to do business in China, but the situation has improved in recent years, as shown by high profile agreements such as that between Anheuser-Busch and Tsingtao.
Now Interbrew, Europe's leading brewing group, has followed suit, signing an agreement with the KK Group which will see it acquire a 70 per cent stake in the latter's brewing operations. Interbrew will pay $42 million (€42.2m) for the stake in KK Brewery, the leading brewer in the Chinese province of Zhejiang.
Interbrew already has a presence in China, where since 1984 it has been providing technical know how to a number of Chinese brewing companies, including the Zhujiang Brewery in Guangzhou and the Five Star Brewery in Beijing. In 1997, Interbrew entered the Chinese beer market as an operator in its own right with the acquisition of the Nanjing and Jingling Breweries.
KK Brewery's business is focused on the city of Ningbo, where it has an 80 per cent market share. It operates two breweries and one bottling line in Ningbo and on Zhoushan, an island which is popular with tourists. KK Brewery also operates a brewery in Kunming in Yunan Province, close to Vietnam.
Interbrew said that the transaction also included KK Brewery's stake in the Lion brewing unit, which it shares with its Malaysian partner Consitrade.
KK Brewery's yearly volume is just under 3 million hectolitres and its main brands are KK, the leading standard lager, and Zizhulin, which is a premium brand.
"We are pleased to acquire this 70 per cent stake in KK Brewery. All parameters of this transaction are attractive," said Stefan Descheemaeker, chief strategy and business development officer of Interbrew. "At an EBITDA multiple of 7.5, the KK Brewery operations extend our presence in the Yangtze Delta in a natural way, close to our current operations in Nanjing. We continue to monitor the Chinese beer market and remain committed to playing a leading role in the consolidation process of the brewing industry in the country. "
Xu Rom Xian, chairman of KK Group, said: "We are pleased with the agreement. The combination of Interbrew's international experience and marketing expertise with the local knowledge and channels of KK Brewery will improve our company's competitiveness and take our company forward."
"Our Nanjing operation has progressed successfully during the first nine months of 2002. Our brands Jinling, Yali and Hu Pi are developing well," said Wai Kee Tan, general manager Interbrew China. "I am proud of my Nanjing team, which has realised a volume increase of 66 per cent, compared to the same period last year."