Thai beer magnate extends SE Asia push with $4.8 billion Sabeco deal
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Thai Beverage has won an auction to buy a majority stake worth $4.84 billion in Vietnam’s top brewer Sabeco SAB.HM, a lofty deal that adds a major asset to the beer-to-property empire of Thai magnate Charoen Sirivadhanabhakdi.
The deal is a big step for Charoen, the son of a Bangkok street vendor, who is emerging as one of Asia’s biggest power players in brewing. He dominates his home market with Chang beer and owns Singapore’s Fraser and Neave Ltd. The Sabeco stake will give him control of brands like Saigon Beer and 333.
The Sabeco deal will also help Thai Beverage (Thai Bev) tap into Vietnam’s beer market, worth about $6.48 billion last year, where a young population and booming economy are an attractive lure, despite political resistance, a high minimum bid price and a cap on foreign ownership.
Thai Bev’s local unit, Vietnam Beverage Co Ltd, was named winner of the 54 percent Sabeco stake on offer at the auction on Monday after global brewing groups stayed away. It barely had any competition as the other investor, a Vietnamese individual, bid for only 0.003 percent.
Late on Sunday, Singapore-listed Thai Bev had said that the Vietnamese unit had submitted the registration form to participate in the bidding.
Vietnam Beverage is owned by Vietnam F&B Alliance Investment Company, which is 49-percent owned by BeerCo Limited – an indirect but wholly-owned unit of Thai Bev, official documents about the companies showed.
“We are very grateful for the opportunity to participate in the future of Sabeco,” a legal representative for Vietnam Beverage told reporters after the auction.The government had set a minimum sale price of 320,000 dong or $14.1 per share for Sabeco, formally known as Saigon Beer Alcohol Beverage Corp, whose shares have jumped almost three fold to 309,200 dong since its listing a year ago.
That priced the target at about 36 times core earnings, more than double the trading multiples for global peers, indicating Charoen had to pay a hefty premium to secure the prize.
“We see this as an example of a successful equitization process,” said Fiachra Mac Cana, head of research at Ho Chi Minh City Securities. “The sums involved are huge and this is also good news for government coffers at the end of the year.”
Thai Bev, controlled by Charoen, was keen to buy Sabeco in a bid to expand outside its home market.
Sabeco’s foreign ownership is capped at 49 percent. With 10 percent already in foreign hands, only 39 percent was on the table for overseas buyers at Monday’s auction. Local bidders could bid for a majority stake of up to 54 percent. Heineken holds a 5 percent stake.
‘Disconnect’
It was previously reported the auction was drawing interest from brewing groups such as Anheuser-Busch InBev, Kirin Holdings, Asahi Group Holdings and San Miguel, but in the end they all stayed away.
“We see this as an example of a successful equitization process,”
“There’s a disconnect between what the government wants to achieve and how international brewers view this auction,” said one person familiar with the matter.
“In a normal auction, bidders are fully aware of what stake they’ll end up owning and bid for it accordingly,” said the person, who was not authorized to speak to the media.
Unlike similar sales in developed markets, where investors are whittled down over several rounds and offers can be adjusted, Sabeco bidders needed to submit a single offer for a specific number of shares in a sealed envelope in one round.
Truong Thanh Hoai, an official at Vietnam’s trade ministry, said there was a level playing field for bidders in the auction, but added the price on offer was not attractive for everyone.
“Some investors see Sabeco fitting with their business philosophy and they can exploit its potential, while some others don’t see it as a fit and feel they can’t make a profit from the amount of capital they’re paying, so they don’t participate. ”
Charoen, who has shown an adept hand at cultivating ties with governments, started trading and supplying distilleries in the 1960s and was able obtain concessions to produce liquor at a time when production was under strict state control.
The Thai King bestowed a royal name on the family in 1988, recognizing service to the country.
In Vietnam, Charoen already owns nearly 20 percent of the country’s biggest-listed firm Vinamilk VNM.HM through Fraser & Neave. He has also acquired the Metro supermarket chain as well as other consumer goods and convenient stores in the country.
The current deal, however, looks expensive, a Singapore-based financial source said, but could bear fruit if Thai Bev had come to certain agreements with its Vietnamese partners.
“These multiples only make sense if there is a concession available,” said the source, adding there would likely be job cuts and re-allocation of employees from Sabeco to other state firms, helping Thai Bev improve efficiencies.
Still, getting the firm in line with rivals’ valuations would be tough, said the person, who did not want to be named due to rules on talking to media.
“He would have to double EBITDA to get the multiple below 20 times. That’s where the highest global peers are trading.”
Questions & Answers
Q.Why did other major global brewing groups choose not to bid in the Sabeco auction?
Why did other major global brewing groups choose not to bid in the Sabeco auction?
Other global brewing groups likely stayed away due to a 'disconnect' between government expectations and their views on the auction. The high minimum bid price and the unusual single-round, sealed-envelope bidding process, which differed from typical sales, may have deterred them.
Q.How did Thai Beverage manage to secure a majority stake given the foreign ownership cap?
How did Thai Beverage manage to secure a majority stake given the foreign ownership cap?
Thai Beverage circumvented the foreign ownership cap by using its local Vietnamese unit, Vietnam Beverage Co Ltd, to bid. Local bidders were permitted to acquire a majority stake of up to 54 percent, whereas foreign buyers were limited to 39 percent of the shares on offer.
Q.What is the primary motivation for Thai Beverage in acquiring Sabeco?
What is the primary motivation for Thai Beverage in acquiring Sabeco?
Thai Beverage aims to expand beyond its home market and tap into Vietnam's attractive beer market. The country offers a young population and a booming economy, making it a desirable location for growth despite the political resistance and ownership limitations.
Q.What makes this deal seem expensive according to financial sources?
What makes this deal seem expensive according to financial sources?
The deal appears expensive because the target was priced at approximately 36 times core earnings, which is more than double the trading multiples of Sabeco's global peers. This suggests Thai Beverage paid a substantial premium for the acquisition.
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