PE Firms Circle South Korean Brewery

HONG KONG/SEOUL (Reuters) – Private equity firms are in pursuit of South Korea’s No.2 beer maker, Oriental Brewery, sources close to the process said on Thursday, in a deal that sellers hope could fetch more than $2 billion.

Anheuser-Busch InBev (INTB.BR), the world’s top brewer, owns a majority stake in unlisted Oriental Brewery (OB) that it wants to sell in a bid to shed non-core assets after Belgium’s InBev bought U.S. brewer Anheuser Busch for $52 billion last year.

Affinity Equity Partners and MBK Partners, two private equity firms with deep experience in South Korea, submitted separate offers for OB, according to the sources.

Bain Capital, The Carlyle Group and Kohlberg Kravis Roberts & Co are also pursuing the business, said the sources, who were not authorised to speak on the record about the deal.

The sources could not confirm whether the other firms definitely submitted first round bids. The firms declined to comment. OB has also declined to comment.

The OB process is turning into the long awaited hot auction in Asia that private equity firms have been waiting for, as large deals the firms hoped to chase have not materialised.

One private equity source said Oriental Brewery’s cash flow is around $170 million, meaning bidders have to see the value of the business as at least 12 times cash flow to exceed a $2 billion purchase price. That’s an expensive multiple in the current market, the source said.

The average multiple paid by private equity buyers in the last few years is 8-10 times cash flow, analysts say.

Valuing the unlisted OB is not easy, as another source previously told Reuters that OB’s cash flow was more than $200 million. As a private company, bidders were eager to have a look at the company’s actual performance numbers.


Local media reported on Thursday that several companies have also submitted offers. Corporate, or strategic, buyers are usually willing to pay more for a deal because they have bigger cost synergies with the target.

Sources said first round bids were due on Wednesday, and those who submit offers are forbidden, for now, to team up with another buyer. Like any auction, bidders may see the process through, or drop out.

The next step, according to one of the sources, is for the advisers to draw up a short list of 3-5 bidders and set a date for a next round of offers.

Anheuser-Busch InBev has put OB up for sale because it needs to raise money to help pay $7 billion in bridge financing that was part of InBev’s purchase of Anheuser-Busch.

OB is known to be a well-run business. Its only local competitor is Hite Brewery (103150.KS), South Korea’s No.1 beer maker. Because of Hite and OB’s dominant market share in South Korea — 60 percent and 40 percent among local producers — Hite would not be able to bid for OB.

Private equity firms typically borrow most of the money for their purchases so, with financing tight, they are likely to team up later in the OB process, or link up with a corporate bidder, sources say.

Reuters reported last month that South Korean retail group Lotte Group was preparing a bid for OB.

A South Korean newspaper on Thursday said OB has drawn interest from Japan’s Asahi Breweries Ltd (2502.T) and Kirin Holdings Co (2503.T), confirming earlier reports from Japanese media on the companies’ interest.

The Maeil Business Newspaper cited unnamed industry sources on Thursday as saying that about 10 preliminary bidders had shown interest through JPMorgan (JPM.N), which is managing the sale.

The report said the other bidders were SABMiller (SAB.L), Asia Pacific Breweries (APBB.SI) and private equity firms Affinity, Blackstone (BX.N), Carlyle, KKR and MBK Partners.

The firms either declined to comment or could not immediately be reached.

Sources involved in the process added Bain Capital to that list, and said Blackstone had not yet shown the level of interest that the other firms had. ($1=1459.0 Won)

By Michael Flaherty and Kim Yeon-hee
(Editing by Dhara Ranasinghe & Ian Geoghegan)