South Korea: Hite Brewery’s takeover of Jinro is to be sealed by the end of this month

A consortium led by South Korea's Hite Brewery Co. likely won't revise the pricetag of its planned purchase of the country's largest distiller Jinro Ltd. and plans to sign an official contract by the end of this month, a senior executive at Hite said on May 24, according to Dow Jones.

The Hite consortium conducted due diligence on Jinro from mid-April, after the consortium was named as a preferred bidder to take over Jinro, South Korea's dominant maker of soju, a traditional liquor. The Hite consortium offered about KRW3.2 trillion for Jinro at that time.

"Consortium members agreed that we don't need to change the proposed price. After paying KRW3 trillion to Jinro's creditors for the distiller's debt, the remaining funds will be used for Jinro's operations," said the Hite executive, who declined to be named.

According to the memorandum of understanding signed in April, the Hite group had a right to revise the offered price by 5%, or KRW160 billion, the official said.

Hite will likely own roughly 35%-40% of Jinro and the other consortium partners - Korean Teachers Credit Union, the Military Mutual Aid Association, Korean Federation of Community Credit Cooperatives and state-run Korea Development Bank - will hold the remainder, according to the official. He didn't elaborate on the each member's stake in Jinro.

The country's antitrust watchdog, the Fair Trade Commission, is reviewing whether Hite's acquisition of Jinro would create a monopoly in the country's liquor market. The commission is expected to announce its opinion by mid-July.

Hite, the country's biggest beer producer, controls about 58% of the domestic beer market while Jinro controls a 55% share of the domestic soju market.

"We will close the purchase only after the FTC announces its ruling on the case, but we are pretty confident of the result as FTC regards markets for soju and beer as separate ones," the Hite official said.

If the deal materializes, Hite will be able to grab the lion's share of the domestic soju market. Around 3 billion bottles of soju worth about KRW2.34 trillion are sold in South Korea every year.

Jinro's majority share of the domestic soju market means that the Hite consortium would be able to quickly secure a firm foothold in South Korea's retail market by utilizing Jinro's strong distribution network, as well as a stable source of cash flow, analysts said.

If the deal with Hite falls through, creditors of Jinro will likely turn to consortia led by Doosan Corp., CJ Corp. and Taihan Electric Wire Co., as they were named as secondary bidders in April.

Jinro's major creditor Goldman Sachs estimated the company's value at $3.6 billion (KRW3.6 trillion).

In May 2003, Jinro was placed under receivership after Goldman Sachs filed a court petition a month earlier.

Jinro posted net profit of KRW59.1 billion on revenue of KRW202.8 billion last year.

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