Vietnam: ThaiBev buys majority stake in Sabeco

Vietnam Beverage Company, Vietnam’s local unit of Thai Beverage(ThaiBev) from Thailand has secured 54% of the shares of Vietnam’s leading brewer Sabeco in today’s auction at a record price of $4.84 billion. Despite the fact that many other international companies including AB InBev, Kirin Holdings, Asahi Group Holdings and San Miguel initially showed interest in the brewer(, 1.8.2017), all of them stayed away from the auction.

Observers believe that the high price and strict regulations, limiting foreign ownership to 49%, were main obstacles for foreign bidders. As 9.39% of the company is already in foreign hands (thereof 5% by Heineken), foreign companies could only bid for almost 35% of Sabeco’s shares. ThaiBev was able to bid for a higher stake since it indirectly owns only 49% of F&B Alliance Investment Company, the holding company of Vietnam Beverage Company.

The sales price marks a 36 multiple of core earnings, which is a hefty premium over other recent deals in the beverage industry. The premium can only partly be justified by the appeal of Sabeco and the Vietnamese beer market.

Undoubtedly the brewery is one of the most attractive take-over targets in the international beer world. Vietnam has one of the world’s fastest-growing economies due to its young population and a rising middle class. Last year, Vietnam produced 37.8 million hectoliters of beer (+ 9.3%). Since 2010 the beer market has gained stunning 40.72%.

Sabeco is the biggest player in the market and reported an increase of 7.4% in sales volume for the last year, up to 16 million hectoliters.

It is believed that ThaiBev will tap into Vietnam’s beer market with its own brands through Sabeco. In return ThaiBev could sell Sabeco’s brands Saigon Beer and 333 in other markets, where the Thai company is already present.

Thai magnate Charoen Sirivadhanabhakdi, who is the founder of Thai Beverage, has shown many times that he is able to buy businesses and include them into his empire. He is also the chairman of conglomerate TCC Group and owns since 2013 about two-thirds of Fraser and Neave, a company which owns inter alia Asia Pacific Breweries.

Charoen is the sixth of 11 children of a poor street vendor, who migrated to Bangkok from southern China. He left school at the age of 9 to work and later started his career by supplying distilleries producing Thai whiskey, which were a state-run monopoly at the time. Through the contacts he made, he acquired a license to produce his own alcoholic drinks. All liquor production was state-owned at the time, and Charoen was able to get rights to 15 percent of the market.

 In 1985, the remaining 85 percent of state licenses were opened to bids. Charoen was able to take out a US$200 million loan using his large stocks of alcohol as collateral and soon after won 100 percent of the concessions.

In 1991 Charoen teamed up with the Danish brewer Carlsberg to tap into Thailand's growing beer market, at the time dominated by the 60-year-old Boon Rawd Brewery which made Singha beer. Three years later, based on what he had learned from Carlsberg, he began making his own beer, branded Chang (Thai for "elephant"). Within five years, Chang had captured 60 percent of the local market. Completely eclipsed, in 2003 Carlsberg pulled out of the joint venture. Charoen then successfully sued the Danish company, winning US$120 million in 2005.

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