* OB Asia-Pacific's biggest private equity trade sale exit
* OB generated estimated $500 mln in EBITDA at end 2013
* AB InBev had option to buy back OB from KKR, Affinity
* PE firms paid around $800 mln cash in first deal
* AB InBev shares strongest in STOXX 600 index
By Stephen Aldred and Philip Blenkinsop
HONG KONG/BRUSSELS, Jan 20 Anheuser-Busch InBev
SA, the world's biggest brewer, agreed to buy back
South Korea's Oriental Brewery Co Ltd (OB) for $5.8 billion
including debt, returning to a large Asian market at a time of
strong industry growth across the region.
The sale by KKR & Co and Affinity Equity Partners
will be Asia's biggest ever for private equity, excluding
flotations, and rewards them with returns of more than five
times their investment.
However AB InBev can claim with Monday's deal to be paying a
reasonable price for a business that has grown in value in the
five years since it was sold for $1.8 billion. That sale was one
of the aggressive divestments forced on InBev after its $52
billion purchase of U.S. brewer Anheuser-Busch in 2008.
AB InBev shares rose 1.0 percent by 1050 GMT on Monday,
making them the strongest performers in a STOXX 600 European
food and beverage index, which was up 0.3 percent.
Andrew Holland, analyst at Societe Generale, said the price
was pretty fair considering OB's improved profitability.
"AB InBev is looking for areas of growth faster than in its
existing business," he said. Referring to the brewer's two
largest markets, he added: "I'm cautious on the U.S. and there
are question marks over underlying growth in Brazil beyond the
World Cup and weather bounce expected in 2014."
OB, with top-selling lager Cass, has become Korea's largest
brewer with a 60 percent market share. It raised its core profit
(EBITDA) to some $500 million last year - 2.3 times greater than
when KKR and Affinity acquired it.
Korea is a relatively mature beer market, with 40 litres
drunk per capita per year, on a par with China. Growth was 2
percent per year from 2009 to 2012, and seen at a little over an
annual 1 percent for the subsequent 10 years.
The overall price of AB InBev's deal - excluding a $320
million cash payment it expects to receive - is some 11 times
OB's EBITDA. That's well below the 16 times Heineken paid in
2012 to take control of Asia Pacific Breweries, which is active
in faster-growing southeast Asia.
The more modest multiple may also reflect the fact that KKR
and Affinity have probably already made many of the sort of cost
cuts that AB InBev typically seeks from its acquisitions.
Analysts said AB was likely to find further savings from
cheaper procurement of raw materials due to its global scale and
by pushing its higher-margin premium brands, such as Budweiser
and Stella Artois via OB in Korea - as well as selling OB's
beers outside Korea.
AB InBev had an option buy OB back within five years of the
date of the 2009 sale. Its decision to strike before the July
deadline underscores the hot competition for brewing and liquor
assets in the region.
The deal comes a week after Japan's Suntory Holdings agreed
to buy spirits maker Beam Inc for $13.6 billion.
Carlsberg, Heineken NV and
SABMiller Plc have also struck deals in Asia over the
past five years, lured by the region's $258 billion market that
is growing twice as fast as the rest of the world.
"The longer InBev waited, the more expensive it became and
they also risked leaving room open for other suitors to knock at
the door of the sellers," said one person with knowledge of the
OB, along with Hite Jinro controls 90 percent of
Korea's beer market, making it relatively easy to raise prices.
Its premium segment could also grow from some 10 percent of the
overall beer market closer to the 20 percent plus of mature
western Europe and North America.
However, the OB buy is more of an add-on than a
transformational deal, given AB's size. Its last big purchase
was $20.1 billion in 2013 for the remaining half of Mexico's
AB InBev said it would draw on existing liquidity to fund
the deal and would still be able to bring its net debt/EBITDA
ratio to below two times in 2015, though perhaps six months
later than planned.
Some analysts said the OB purchase could mark the start of a
push by AB InBev beyond its core markets in the Americas, with
other add-on deals possibly in China. The brewer has a
relatively small presence in Asia Pacific.
BIG PRIVATE EQUITY RETURNS
KKR and Affinity's sale of Oriental Brewery represents a
multiple of over five times the cash they paid, according to a
source with knowledge of the matter, a huge return for a deal of
this size and rewarding the firms with hundreds of millions of
dollars in net profit.
For the buyout firms, it was a high risk deal less than a
year after the collapse of Lehman Brothers when there was no
clarity on how long the global recession would last.
Citigroup and Morgan Stanley advised KKR and
Affinity and Deutsche Bank AG and Lazard
advised AB InBev, according to a source with knowledge of the