InBev-Anheuser deal may stir up China beer boom

By Joseph Chaney - Analysis

HONG KONG (Reuters) - InBev's INTB.BR $46 billion bid for Anheuser-Busch (BUD.N) could not only create the largest brewer in China, it could also raise profit margins for all players in the world's biggest beer market.

The Belgian brewer has been reported to be sniffing around Anheuser, the largest U.S. brewer and maker of Budweiser and Michelob beers, although there has been no confirmation of a deal.

Analysts say acquiring Anheuser's China assets would give Inbev two advantages: The scale to challenge market leader CR Snow, which dominates the mass market with a 16 percent share;, and a leading role in healing a fragmented industry of roughly 400 brewers in need of better marketing and distribution.

"InBev is involved with a number of smaller breweries all across the country, and so a combination of InBev plus AB would serve the market well, in the way that consolidation can move forward sooner rather than later," said Selina Sia, an analyst at JP Morgan.

Buying Anheuser would hand Inbev a coveted 27 percent stake in Tsingtao (0168.HK), China's No. 2 brewer, ownership of the Harbin Brewery Group's 13 breweries, and the No. 1 spot enjoyed by Budweiser in the country's most expensive "super-premium" beer segment.

The importance of China's beer market was underlined by Jin Zhiguo, Tsingtao's president, when he said earlier this year that beer demand is expected to grow up to 10 percent per year in the next five to 10 years, as the country's huge rural population shifts to beer from hard alcohol.

In contrast, Anheuser-Busch's sales volume in its core U.S. market grew just two 2 percent last year.

InBev, brewer of Beck's and currently No.3 in China, already has partnerships with smaller Chinese players including Zhejiang Shiliang Brewery, and owns 100 percent of Fujian Sedrin Brewery.