PE Firms Want Oriental Brewing, But Do They Have A Chance?

Our Reuters colleague Mike Flaherty today reported that several buyout firms are circling South Korean beermaker Oriental Brewery, which is hoping to garner more than $2 billion. There are lots of interested suitors — including Blackstone, Bain, KKR, MBK and Affinity Partners — but this deal seems like it should be a real longshot.

There’s only one way this type of deal would make sense, and that’s if it looks like last year’s Weather Channel transaction. In that case, two buyout firms (Blackstone Group and Bain Capital) teamed up with a strategic buyer (NBC) to purchase the Landmark Communication divestiture.

Part of the reason PE buyers of the second largest South Korean brewery would/should need to team up with strategic buyers is because private equity firms don’t bring much “value-add” to the table for a mature beverage company. It’s especially true in the beer industry, where distribution trumps all.

Strategic buyers, on the other hand, can produce synergies: They can add their own brands to Oriental Brewery’s distribution, or use their existing production capacity more efficiently by producing Oriental Brewery’s products in their facilities. Buyout firms can cut costs or make operational improvements, but that may not be necessary in this case—Flaherty said Oriental is “known to be a well-run business.”

Moreover, Oriental has plenty of strategic bidders lining up in queue. While it’s not clear if the all of the interested trade buyers are serious (maybe some just want insight into their competitor), the list includes Hite Brewery, Asahi Brewery, SABMiller, Asia Pacific Breweries, Lotte Group, and Kirin Holdings.

Lastly, this is a divestiture. It’s being carved out of Anheuser Busch as part of anti-trust requirements from its $52 billion merger with InBev. I’m not sure how much of the company’s assets or administrative functions are tied into that of the brewing conglomerate’s, but that would definitely make the case for a strategic buyer, which would have that overhead in place.

One question I’m also curious about is, why so much interest for this asset from buyout firms? Is it because it’s the first decent-sized deal all year, and they just need to quench their buying thirst?