South Korea, Seoul: South Korea's biggest beer maker, Hite Brewery Co., announced on April 1 its consortium was chosen as the preferred negotiator to buy the country's top spirits maker, Jinro Ltd, for which it reportedly bid $3.2 billion. Jinro, which controls more than half of South Korea's market for the traditional drink "soju," has drawn interest from both local and foreign companies, according to Reuters.

An acquisition would provide Hite, 25 % owned by Denmark's Carlsberg, with a dominant position in the Korean spirits market. Jinro also boasts a loyal consumer base in Japan. "The purchase of Jinro would be a good synergy for Hite," said S.H. Jeoung, an analyst at Hyundai Securities. "They could save costs because they already share common distribution channels."

Hite told the Korea Exchange that it was picked as a preferred bidder. It didn't elaborate, but a source at Hite told Reuters the company would receive a formal letter soon. The source declined to give details about its offer price, but local media reported that the consortium had offered the highest bid of 3.2 trillion won ($3.2 billion).

The reported offer put the value of Jinro at 13.5 times its projected earnings for 2005, almost double the 7.2 times projected earnings for Doosan Corp., a smaller rival that also bid for Jinro. The Hite-led consortium includes a number of local private equity funds, such as the Military Mutual Aid Association, a teachers' pension fund and a fund owned by state-run Korea Development Bank. Goldman Sachs, a major Jinro creditor, valued the distiller at $3.6 billion in early March.

The deal is expected to be the biggest in South Korea since Standard Chartered agreed in January to buy Korea First Bank for $3.3 billion.

A total of 10 final bids were presented on Wednesday for the drinks maker, including a joint bid from family-run Lotte Group and Japan's Asahi Breweries Ltd. Other bidders included a Citigroup buyout fund, Citigroup Venture Capital, as well as a consortium led by U.S. investment firms Newbridge Capital and Affinity Equity Partners.

Jinro said three other consortia were selected as runners-up, including one led by food maker Doosan Corp (000150.KS: Quote, Profile, Research) and investment firm JPMorgan Partners. The other runners-up included groups led by food company CJ Corp and wire producer Taihan Electric Wire.

A Doosan spokesman told Reuters its consortium had made a bid of 2.8 trillion won, while other bidders did not disclose their offers. But analysts questioned whether the Hite-led consortium's offer of 3.2 trillion won was too high. "If they pay 3 trillion won, this would be much higher than market consensus on Jinro's value, which is 2.5 trillion won," said Hyundai's Jeoung.

The top bidder is expected to sign a preliminary contract with the lead manager of the sale, Merrill Lynch, and to conduct a due diligence on Jinro before inking a final agreement. Shares in Hite rose by the daily permissible limit of 15 percent before falling back to close up 8.7 percent at 106,500 won.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .