Harbin Beer Becomes Hostile Takeover Target
Two non-Chinese companies, Anheuser-Busch and SABMiller,
have worked themselves into a froth in their attempt to
take over Harbin Brewery, the owner of the Harbin Beer
brand, which is popular in northeast China.
The heated battle between the two companies for Harbin
Brewery has caught many Chinese off-guard, not the least
of which is the management of Harbin Brewery. Harbin Brewery
is a state-owned enterprise, and the prevailing wisdom
in China is that state-owned enterprises usually have
little, if anything, which is salvageable, let alone profitable.
That's why privatization of state-owned assets is going
slowly in China. The government wants to sell them off,
but the law requires that they be sold at market value,
and not at a net loss. Above all, it wants to avoid the
messy Russian privatization of the 90s, where the government
lent money to the new buyers for largely worthless shares.
The new owners then sold off the parts of the business,
realizing a fast profit, and keeping the most profitable
parts for themselves through new business entities.
The Chinese government looked at this model, and said:
"No, not a good idea." But what's market value
when there are no precedents? And if there is no market
value, then how do you determine what a net loss is?
All unanswered questions.
Welcome to the fun world of privatization of state-owned
assets at market prices where market prices are yet undetermined.
And now this? A battle between two leading international
breweries for Harbin Brewery? Everyone is scratching their
heads and asking: "What do they see that we don't
see?"
Harbin Brewery makes a product called beer. Some people
call it a commodity; marketers would call it a brand.
It sells for a price within a range which does not vary
too much. It's easy to figure out how many people buy
it, how much is sold, and how much profit is made per
sale. It's also easy to figure out the costs of marketing
and advertising the brand. It isn't hard to figure out
how much the ingredients, labor and input costs.
Put simply, it's a state-owned enterprise where it isn't
difficult to figure out market price.
Which is where Anheuser-Busch and SABMiller and their
financial advisers come in.
After the initial shock has worn off, Harbin Brewery's
management is in the enviable position of being wooed
by two suitors with deep pockets. At first, there was
initial shock and outrage at the idea of a hostile takeover,
but it's amazing how quickly that disappeared as soon
as the numbers were discussed.
Stay tuned for Act II.
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