Belgian brewing force, Interbrew, announced on September 5, 2003 that it had reached an agreement with the Malaysian group, Lion Diversified Holdings Berhad (LDHB), to become its strategic partner in the beer business in China. Under the terms of the transaction LDHB will sell to Interbrew a 50% share in LDHB's China brewing activities for US$131.5 million, and transfer management control of the strategic partnership to Interbrew. Moreover, Interbrew said it would have the option to buy the remaining 50 % for another $131.5 million any time a year after the deal is closed.

The partnership clears key acquisition criteria for Interbrew: significant potential to grow outside both local and regional markets through strong brands, volumes, economies of scale and critical mass; continued focus on the core lager segment; and solid, dependable management resources. The transaction is expected to close during the first quarter of 2004 after due diligence, shareholder approval and necessary regulatory approvals in Malaysia.

Lion Diversified Holdings Berhad (LDHB) is listed on the Kuala Lumpur Stock Exchange. LDHB realised a total beer volume of 11 million hectolitres in 2002. This new partnership places Interbrew as the third largest brewer in China in terms of production volumes, achieving almost a 9% market share, with 21 million hectolitres sold, said Interbrew.

John F. Brock, Interbrew's CEO, commented, "I am very pleased that this strategic partnership has been formed. It represents a significant step in our overall strategy, and allows local management to do what they do best. It also allows Interbrew the opportunity to share marketing expertise, brand management skills and technical knowledge with our local partners. China continues to command a high priority for Interbrew, and this transaction testifies to our continued commitment to the China market."

Through its various partnerships and acquisitions, Interbrew now holds a strong number one position in Guangdong province (Zhujiang Brewery), a number one position in Zhejiang province (K.K. Brewery and Lion Breweries) and a top three position in Jiangsu province (Nanjing Brewery and Jiangsu Debier Brewery). The strategic partnership announced today also provides Interbrew entry into three new provinces: Hubei, Hunan and Shandong; and contributes to an already strong portfolio in China, with local brands: Zhujiang®, Jinlongquan®, Double Deer®, KK®, Santai®, Jinling® premium local brands: Zhujiang Fresh®, Jinlongquan Fresh, Double Deer Fresh, KK Fresh international premium brands: Stella Artois® and Beck's®; and specialty brands: Leffe® and Hoegaarden®.

This transaction marks a continuation of Interbrew's strategy to expand in China to become a major player in the domestic market, through a focused approach that targets the coastal areas. Interbrew has been active in China since 1984, providing the transfer of technical and brewing know-how to various Chinese brewing companies, including the Zhujiang Brewery in Guangzhou and the Five Star Brewery in Beijing. In 1997, Interbrew entered the Chinese beer market as an operator with the acquisition of the Nanjing and Jingling Breweries. In 2002, Interbrew acquired a 24 per cent share in Zhujiang Joint Stock Company, China's fifth largest and most profitable brewer, and a 70 % stake in K.K. Group's brewing business, based in Zhejiang Province. Interbrew's longstanding interaction with its Chinese partners has provided the company with a number of strong local relationships and a good understanding of the Chinese beer market.

SABMiller is now the leader in China with its partnership with China Resources, followed by U.S. brewing giant Anheuser-Busch with Tsingtao. Brewers are jostling for position in China as their traditional markets in Europe and North America grow mature with little room for growth. Carlsberg also has a significant presence in China through recent acquisitions Dali and Kunming. But there is still huge potential in China, with most of the major groups at best present in a handful of provinces and few having anything resembling a nationwide presence.

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