Mergers & Acquisitions

Merger means the combining of two business entities under common ownership. And most commentators use merger and acquisition and takeover interchangeable. According to economic or strategic definitions of mergers, it can be divided into three categories: horizontal, vertical and conglomerate. Merger motives include synergy, bargain buying, managerial motives and third party motives.

HONG KONG, Feb 5, SABMiller, which is the world’s second–biggest brewer, purchase Kingway Brewery assets for 5.38 billion yuan. SABMiller will control seven breweries of Kingway with this acquisition. Four are in Guangdong province which is one of fast growing and most affluent regions in China. The other breweries are in Sichuan, Shanxi and Tianjin. Kingway said in 2012 it decided to dell brewing operations since its profit was being hit by competition and rising costs. In 2012, Beijing Yanjing which is the fourth-largest domestic brewer in China want to acquired Kingway, however, in final round of bidding, it failed. In 2013, J.P Morgan acted as financial adviser to SABMiller. As a result of this deal, Kingway share price in HONGKONG stock market increased almost 20% (Hongkong stock market, 2013), meanwhile, SABMiller shares grew up 0.9 %. (These source from Yahoo Finance, 2013)

In the case, I think it is a suitable time for SABMiller to acquire Kingway by a lower price. According to statement above, Kingway faces a decrease of profit and in the first acquisition with Beijing Yanjing, it failed. These negatively influenced the price of acquisition of Kingway. In the respect of result, the target company, Kingway, shares increase 20%. The bidder, SABMiller, shares increased 0.6%. In the long term, personally I am optimistic for the horizontal M&A. Kingway is the most popular brand in Guangdong province and Sichuan, Shanxi and Tianjin. SABMiller also controls CR Snow which owns best sales of beer in China. Thus larger size between Kingway and SABMiller will create economic of scale in term of research and development, as well as purchasing. Meanwhile ‘the acquisition of Kingway asset gives us greater access to high growth and attractive regional markets in China, thereby enhancing CR Snow’s competitive position.’ SAB Asia Pacific managing director Ari Mervis Said. It increases SAB market share and competition in developing Chinese beer industry. In addition, Kingway can learn high level of management skills and marketing skills from multinational company, SAB. In this way it can increase its competition. Furthermore, SAB have experience about acquisition with Chinese company. It will decrease risk of conflict of culture and it is benefit for integration. These factors above will create strong synergy effect.