Japan: Asian alcoholic beverage leader Asahi Breweries Ltd (“Asahi”) and a leading Japanese trader Itochu Corporation (“Itochu”) announced on January 5 a strategic partnership with leading Chinese packaged food and beverage producer Tingyi (Cayman Islands) Holding Company (“Tingyi”) to further enhance their strong foothold in China’s beverage industry.

A-I China Breweries Co Ltd, an entity 80% held by Asahi and 20% by Itochu, will pay cash to acquire a 50% equity interest in Tingyi-Asahi-Itochu Beverages (TAI), a newly incorporated holding company with 100% interests in 13 beverage subsidiaries previously owned by Tingyi. The transaction values TAI at US$950 million based on enterprise valuation. The completion of the transaction is subject to the successful reorganization of Tingyi’s beverage subsidiaries and shareholders’ approval.

The trio aims to further cement their leadership in China’s beverage market which had a total consumption of 20 million kilo-liters and a total sales turnover of RMB117 billion in 2002. In fact, China’s beverage market has been growing at an average rate of 15% per annum since the early 1990s. The market size in 2002 had doubled in value since 1997. On the product front, the Chinese market has seen a vibrant growth in a broad range of beverage products, such as tea and juices, where Tingyi ranks number one (45%1) and two (20%2) in terms of market share, respectively.

The partners will seek to develop the company into a beverage giant to further take advantage of the rapidly-growing demand and rising household income in China. The new company will focus on enhancing the existing products and strengths while developing new products, such as functional drinks, and coffee drinks, to cater for the taste of the new breed of consumers in urban China.

The partnership will draw on the complementary strengths of the partners. Tingyi owns the leading household brand, manufacturing facilities in strategic locations and the deepest and broadest distribution network in China. Asahi brings superb production and R&D capabilities for Asian beverage flavors.

Tingyi’s Chairman and President Mr Ing-Chou Wei commented, “We are truly excited to team up with two successful Asian business leaders which have demonstrated long-term commitment to China. They will provide the important resources for us to build the required scale and core competency to better compete in an increasingly crowded market. We are confident this is a value maximizing transaction for our shareholders.”

J.P. Morgan Securities (Asia Pacific) Limited and Nomura Securities Co., Ltd. acted as exclusive financial advisors to Tingyi and A-I China Breweries Co Ltd., respectively.

Tingyi is the largest packaged food producer in China with sales of US$1.1 billion in 2002. It is principally engaged in the research, development, manufacture, distribution and sale of instant noodles, bakery products and beverages. The company’s beverage division consists of thirteen plants around China, with a US$358 million revenue in 2002. Its well-developed sales and distribution network covers more than 400 major cities and 700 towns in China, supported by a dedicated sales force of over 3,500 people. Tingyi’s “Master Kong” brand is one of the most recognized consumer brands in China. Tingyi is listed on Hong Kong Stock Exchange with a current market capitalization of approximately US$1.3bn.

Asahi is a leading Japanese manufacturer of alcoholic beverages. Leveraging on its product strength in beer and soft drinks and its success in the Japanese market, Asahi has been actively pursuing expansion into other countries in Asia, North America and Europe. Since 2001, it has focused on China as the engine for business development and future profit growth. Further to the existing five beer projects in China, Asahi’s investment in TAI will greatly enhance its China presence and represent a major milestone in the development of its international business. Asahi is listed on Tokyo Stock Exchange with a current market capitalization of approximately US$4.7bn.

Itochu is one of Japan’s leading trading companies with offices in over 80 countries and operations that cover a broad spectrum of industries. It is ranked 17th among the top 500 companies in the world. The company’s “Super A&P 2004” mid-term business plan focuses its China strategy on “consumer-related” investment activities. Prior to the current transaction, Itochu has already entered a comprehensive co-operation agreement with Tingyi’s parent company, Tinghsin Group, in China’s retail and restaurant sectors. Itochu is listed on Tokyo Stock Exchange with a current market capitalization of approximately US$5.2bn.

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