Beer goggles

Tsingtao Brewery awoke on January 23 under a slightly different sun. A 16-year relationship with Anheuser-Busch entered a new stage with the announcement that the American beer giant, now part of Belgian conglomerate Anheuser-Busch InBev (AB InBev), had sold a 19.9% stake in Tsingtao to Japanese brewer Asahi for US$667 million, reducing its own stake to 7%.

Involving one of China’s most recognizable brands and at least one high-profile international investor, the deal attracted significant attention. AB InBev quickly moved to counter speculation that it hoped to reduce its focus on China.

"Anheuser-Busch InBev remains strongly committed to China," said AB InBev CEO Carlos Brito in a statement. "We are pleased that this transaction unlocks the value of our minority investment," he added.

Some news reports suggested that there may have been more to the sale, and that Chinese government pressure encouraged the company to divest itself of its holdings.

Such speculation has had little evidence to back it up. However, the nature of the speculation highlights continued uncertainty over Beijing’s role in high-profile investments.

Monopoly review

At issue is the Anti-monopoly Law introduced in August 2008. When Anheuser-Busch and InBev announced plans to merge last year, Beijing reviewed the merger under the terms of the law.

While the combined company would not control a significant portion of China’s beer market, as part of its agreement to allow that deal to go through, the government placed restrictions on AB InBev’s Chinese holdings, said Alice Hui, an analyst at DBS Vickers Securities in Hong Kong. AB InBev would be allowed to keep its 27% stake in Tsingtao, but it would not be permitted to add to it.

The terms of that deal make it unlikely that Beijing subsequently pushed AB InBev to reduce its stake in the Chinese brewery, said Peter Wang, a partner at law firm Jones Day in Shanghai.

"They could have made [divestment] a requirement of the deal approval … had they wanted to, and nobody would have been able to fight about it," he said. An alternative, more common among antitrust legislators worldwide, would have been to simply block the deal.

By neither blocking the initial merger nor imposing divestiture requirements on the company, Wang explained, Beijing gave its implicit approval to AB InBev’s stake in Tsingtao and other brands (AB InBev retains full ownership of Anheuser-Busch’s Harbin beer brand).

For its part, the company says it was never under any pressure.

"The decision [was] not driven by regulatory concerns. The decision to sell this stake was reached independently as it made sense strategically for AB InBev," said Marianne Amssoms, vice president of global communications for AB InBev.

Specifically, AB InBev agreed to the deal, after being approached by Asahi, to help it pay down debts incurred during its merger process. InBev took on a total of US$45 billion in loans last year to pay for its US$52 billion purchase of Anheuser-Busch. Amssoms said the Tsingtao sale was part of a larger divestitures program.

Market weakness

If so, the company chose a good time to sell. It secured what it calls an "attractive" valuation for its stake at a time when China’s beer market remains fragmented and is seeing an increasing impact from the economic downturn. Joy Huang, an analyst with market research firm Euromonitor in Shanghai, said that weak business at bars and restaurants would hurt the growth of the market.

Despite good business reasons for a sale, and AB InBev’s own denials of government pressure surrounding the deal, doubts remain over whether regulators were as uninvolved as has been claimed.

A notable lack of transparency surrounding anti-monopoly investigations makes it difficult to determine how much of a role, if any, regulators played in the AB InBev-Asahi deal. In that sense, the deal could present a worrying example for foreign investors.

"It makes it harder for companies to really plan what they’re doing in terms of investments or acquisitions," said Jones Day’s Wang. "It means there’s always a level of uncertainty."