By Quentin Webb
HONG KONG (Reuters Breakingviews) - Asahi is sobering up a bit when it comes to dealmaking. Late on Wednesday, the Japanese brewer said it would sell the roughly one-fifth it owns of Chinese counterpart Tsingtao for about 106 billion yen ($937 million). The near-decade-long bet has not been time or money well spent but at least this shows Asahi will now focus on investments where it can wield meaningful control.
The maker of Asahi Super Dry is selling 18 percent of the state-backed outfit to various units of Fosun, Guo Guangchang’s acquisitive Chinese conglomerate. This could work out well for the buyer if, say, local rival China Resources Beer were eventually to consolidate the market by swallowing Tsingtao. Meanwhile, Tsingtao’s biggest shareholder will buy the remaining 2 percent being sold.
The price, an almost-one third discount to Tsingtao’s stock, looks awful but the market had run up in anticipation of a deal, and in valuation terms this is less punishing. Selling at HK$27.22 a share equates to about 25 times next year’s expected earnings, in line with the 10-year average forward multiple.
Nonetheless, there will be a tepid clinking of glasses at Asahi headquarters. The Japanese bought the stake from Anheuser-Busch InBev at a big premium to the market in 2009. The venerable Tsingtao, founded in 1903 by German and British merchants and the first Chinese state-owned enterprise to float in Hong Kong, looked enticing.
But Asahi was not able to convert its investment into a broader commercial partnership. And Tsingtao has struggled to keep up with local and foreign competitors. Forecast earnings per share this year are roughly three-quarters of what they were in 2014. That means financially the pint lacked a punch too. Based on the entry and exit prices in dollars, Asahi is on course to make an annualised return of less than 4 percent, a Breakingviews calculation suggests, although dividends will slightly improve that figure.
The one positive is that Asahi seems to be swearing off tying up capital without influence. Granted, it has more recently struck expensive-looking deals in Europe, but at least those bring control. So Asahi has learned something valuable from this boozy misadventure.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.