British beer producer Scottish & Newcastle plc (S&N), the world's sixth-largest brewer, will acquire a 19.5 percent stake in the Chongqing Brewery Co Ltd (CBC), to bolster its presence in China.

According to the Chinese company's notice published Wednesday in the China Securities Journal, S&N signed a sharing transfer and cooperation agreement with its biggest shareholder, Chongqing Beer Group, on Tuesday.

S&N will pay 525 million yuan (US$63.4 million) for CBC's 50 million state shares which are owned by the beer group, the notice said.

The price, at 10.5 yuan (US$1.27) per share, is more than four times the Shanghai-listed company's net asset value, which shows the foreign brewery giant's eagerness to further tap into the fast-growing Chinese market, said Qiao Baijun, an industry analyst from China Galaxy Securities.

With more than 10 years of partnership with Chongqing Breweries in terms of technical support and brewing under licence arrangements, the new move "is an excellent way for S&N to become part of one of the biggest and fastest-growing beer markets in the world," said John Nicolson, chairman of S&N's International Beer Division, according to Wednesday's press release on the British company's website.

Completion of the transaction is expected to take several months and is still dependent on Chinese Government approval, the British company said.

After the deal is closed, S&N will have board representation and become the second-largest shareholder of the listed Chongqing Brewery Co, while the Chongqing Beer Group will remain first with a 34.55 percent stake.

The deal is just one phase of an acquisition binge-taking place in China involving foreign brewing giants, Qiao said.

"China's brewing sector has entered a new round of mergers and acquisitions, ever since US brewery Anheuser-Busch increased its shares in Tsingtao Beer from 4.5 percent to 27 percent in October 2002," Qiao said.

At present, most of the top 10 domestic beer producers have their foreign counterparts as their big shareholders, Qiao said.

Despite the fact that China's beer market is one of the fastest growing in the world with an average of 6 per cent growth a year, it has been dogged by cut-throat competition between more than 500 breweries, mainly small and medium-sized ones, all over the country, Qiao said.

"This means more room for mergers and acquisitions, as the average annual production of the 500-plus breweries is less than 50,000 tons," Qiao said.

As S&N makes its Chongqing move, another foreign brewing giant Carlsberg is taking a step to tap the huge southwestern Chinese market.

The Shenzhen-listed Tibet Galaxy Science & Technology Development Co Ltd announced yesterday it has signed a strategic partnership agreement with Denmark-based Carlsberg International A/S and investment firm Wilton Pacific Ltd.

According to the agreement, the local firm and Wilton will form a 50-50 joint venture, based on the local firm's subsidiary Lhasa Brewery in the initial phase.

The establishment of the joint venture will increase beer production capacity to 150,000 tons a year over the Tibet firm's current 50,000 tons a year.

After the establishment of the joint venture and the completion of increasing production capacity, Wilton will transfer its 50 per cent stake to Carlsberg, enabling the Danish firm to enter the market.

The acquisition will make Carlsberg a market leader in Tibet, the Danish firm said.

Lhasa Brewery was established in 1988 and is the absolute market leader with a market share of 45 percent. It is the only brewery in Tibet.

Following the completion of the acquisition, Carlsberg will implement its own high standards of operation including ongoing training of the brewery's approximately 250 employees.

(China Daily February 12, 2004)