As mentioned earlier, Fosun Group's acquisition of Tsingtao Brewery has undoubtedly attracted great market attention, but behind this, the three parties involved may each have their own thoughts and helplessness.

On the evening of December 20, Tsingtao Brewery announced that Fosun Group would acquire Asahi's 17.99% stake in the company for HK$6.617 billion, while Tsingtao Brewery Group would repurchase the remaining 1.99%. The transaction between Asahi and Fosun is expected to be completed on March 28, 2018, and the transaction with Tsingtao Brewery Group is expected to be completed on March 30.

Many in the industry probably did not expect this outcome.

At the time, beer industry expert Fang Gang analyzed that Tsingtao Brewery's equity had only three possible destinations: outside the industry, within the industry, or buyback.

Obviously, the possibility of a buyback was the smallest, because when Budweiser sold its stake to Asahi previously, Tsingtao did not choose to buy back.

According to the agreement at that time, Asahi's sale of Tsingtao Brewery shares required two conditions: on one hand, the buyer must hold at least 19.99% of the shares, and on the other hand, it must directly or indirectly operate beer production or sales or related businesses in China, or enjoy related rights.

Given these two conditions, although there are many domestic companies involved in beer business, those that could take over Asahi's stake in one go are definitely no more than a handful.

Initially, the industry generally believed that China Resources Snow and Carlsberg were the most likely candidates, but later UBS reports also pointed out that after China Resources Snow regained half of the shares held by SABMiller, it had become the true leader in China's beer industry. If it continued to acquire shares of the second-ranked Tsingtao Brewery, it would likely face antitrust investigations.

As for Carlsberg, which is currently in an awkward position, if it still harbored dreams of counterattacking in China, acquiring Tsingtao Brewery's shares would undoubtedly be a shortcut, but obviously Tsingtao Brewery would not allow such a situation to occur. In fact, the eventual sale of Tsingtao Brewery's shares seemed likely to end in a deadlock.

But unexpectedly, Fosun Group suddenly emerged.

It is worth noting that this time Fosun only took over 17.99% of the shares, while Tsingtao Brewery Group repurchased 1.99%, and Fosun Group had no prior experience in beer investment, which actually did not meet the two previous conditions.

Moreover, from the sale price perspective, Asahi had spent $670 million to acquire the stake back then, and after all these years, it only sold for HK$7.3 billion (HK$6.6 billion + HK$0.7 billion), approximately $930 million. The premium seems acceptable, but considering the nearly 10 years from 2009 to 2018, the return on investment is not high.

This result may indicate two issues: 1. The transaction was approved by Tsingtao Brewery, bypassing the two clauses. 2. For Asahi, there may have been no better choice.

After the acquisition, Fosun Group publicly stated its willingness to provide resources to strengthen Tsingtao Brewery, while also clarifying its role as a strategic investor with no intention to interfere in Tsingtao's management. Tsingtao reciprocated with a welcome and expectation.

For Asahi Group, selling Tsingtao Brewery was also a helpless move. Asahi's business is shifting to Europe, and after spending €10 billion to take over the beer business of five Eastern European countries, its balance sheet is tight.

On the other hand, Zhu Danpeng, a researcher at the China Brand Research Institute, analyzed that Asahi Group's focus is currently on Europe, and its main business is shifting to high-margin products, with some trade-offs in traditional industries. After all, Asahi also has a need to avoid risks. Many European companies are at bargain prices now, while in China, the beverage and beer industries have seen some improvement this year after experiencing a certain degree of decline in the previous two years, and competition is also fierce.

But for Fosun, which has never been involved in the beer industry, such a large investment seems somewhat abrupt.

According to a report by China Business Network, Fosun had also established a food and beverage division, mainly responsible for investments in food, beverages, and alcohol, and had bought some food and beverage stocks in the secondary market, such as Sanyuan Foods. It also participated in the investment in Spanish ham and wine manufacturer Osborne Group, which owns sherry products. The company had also intended to participate in the private placement of Shunxin Agriculture, the parent company of Niulanshan Distillery, as well as the mixed-ownership reform of Tuopai Shede Group, and the equity transfer of Jinzhongzi Wine, but none of these ultimately succeeded.

However, Fosun Group Chairman Guo Guangchang, in his public account "Guangchang Kan Shijie," detailed his connection with Tsingtao Brewery, even revealing a past story: 30 years ago, passing through Qingdao, he saved two meals' worth of money to drink Tsingtao beer. In the article, when discussing the acquisition of Tsingtao Brewery, he expressed a strong sense of nostalgia and mutual appreciation.

I believe Chairman Guo is too busy to reveal his true feelings, and this article was probably written by someone else, but it is worth noting that at the beginning of the article, it says: "Just now, I signed the agreement to purchase Tsingtao Brewery shares from Asahi Group. Fosun will replace Asahi as the second largest shareholder of Tsingtao Brewery. We feel very honored."

This sentence must have been approved by Chairman Guo. I speculate that in this tone, satisfaction is evident.

Although Tsingtao Brewery is indeed a good company, the beer industry as a whole has not yet recovered from the downward trend. Although Tsingtao Brewery has performed commendably in this round of industry adjustment, it is difficult to resist the general trend, and maintaining growth is not easy.

According to the third-quarter report this year, Tsingtao Brewery's revenue from January to September was 23.4 billion yuan, a year-on-year increase of 1.5%, and net profit was 1.87 billion yuan, a year-on-year increase of 1.6%. According to the 2016 industry ranking, China Resources Snow, Tsingtao Brewery, AB InBev, Yanjing Beer, and Carlsberg had market shares of 25.6%, 17.2%, 16.2%, 9.3%, and 5% respectively by sales volume.

Of course, becoming the second largest shareholder of Tsingtao Brewery is indeed something to be proud of, but perhaps Chairman Guo's satisfaction lies in another direction.

According to Bloomberg, Chinese conglomerate Fosun International, under pressure from government scrutiny of its overseas acquisitions, has sold its first Sydney property investment.

According to a statement by Australian property group Propertylink Group on Monday (December 18), the property transaction was priced at A$142.5 million (approximately RMB 722 million), with an internal rate of return of 14%.

This is another asset sale by Fosun, following the sale of its London financial district assets.

According to media reports, in recent years, Fosun Group had spent billions of yuan to purchase hundreds of thousands of square meters of core properties in London, New York, Tokyo, Sydney, Lisbon, and other cities. As of June 2015, Fosun Group had invested in 36 projects outside China, totaling $9.8 billion, mainly in insurance, finance, listed companies, and healthcare, in addition to real estate.

The Chinese government began to gradually tighten regulation of overseas investment activities in June this year, and selling overseas investment projects is Fosun Group's response to policy calls. After the Two Sessions this year, Guo Guangchang publicly wrote, "I am full of confidence in China's future and will firmly be bullish on China."

Being bullish on China also requires good and representative projects, which must be both favorable and obvious. Obviously, Tsingtao Brewery is the most suitable.

As expressed in Fosun's announcement: Tsingtao Brewery and even the beer industry are typical examples of consumption upgrading (fitting the aspiration for a better life, and you know who said that); on the other hand, providing resources to strengthen Tsingtao Brewery and hoping to benefit from the accelerating state-owned enterprise reform process (contributing resources, willing to take risks for reform, and simultaneously binding with state-owned enterprises).

Shen Meng, executive director of Chanson Capital, told me that Asahi's desire to exit Tsingtao has been long-standing, but it was difficult to find a suitable buyer. After encountering bottlenecks in overseas acquisitions, Fosun Group needed to find new investment targets. Tsingtao, as a historical brand, is one of the few good targets in China.

Regarding investment returns, Shen Meng believes that although the beer industry is not a high-profit industry, its returns and growth are relatively stable. Especially since Tsingtao has a good brand, it is a relatively good target for Fosun, which imitates Berkshire Hathaway's model of using low-cost insurance float for investment profits. As long as Tsingtao's returns are higher than the cost of insurance funds, it is fine.

Chairman Guo has calculated a good deal. Let's stop here and wait for the next installment.

(This article is purely speculative, so don't take it seriously)

Source: 快消乱谈 (ID: kuaixiaoLT)

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