A Better Field of Play

CFO Asia's fourth annual Deals of the Year.

SARS. War in Iraq. Global economic slowdown. Clearly, 2003 never promised to be a great year in Asian corporate finance. The first half of the year turned out to be as barren of deals as the Hong Kong subway system was bereft of passengers during the SARS scare. But in the doldrums, the region’s CFOs were regrouping. By the end of summer a strong stream of transactions barely kept up with pent-up investor demand. Bankers are now optimistic that the window that rose for lucrative deal-making in September will remain open for some time.

Counter-intuitively, Asia’s markets and its companies look far more competitive at year-end than they did before the global gyrations of 2003 held center stage. Asian growth projections feature in the headlines every day. China’s economy has held stable amid volatile global economic conditions. India is now a darling of global equity investors. Even Japan seems to be showing stubborn signs of life. In 2003, Asia became more than a passive party to globalization, but a leader in global best practices. We selected the deals below as evidence that the region’s CFOs — and the bankers that supported them — are every bit as much players in this phenomenon as the politicians and regulators that typically grab the headlines.

Long may the good times roll.

Mergers and Acquisitions

Tsingtao Brewery’s alliance with Anheuser-Busch

Financial advisors: HSBC, Morgan Stanley

When China’s largest brewery decided it needed a strategic investor, the logical partner was America’s Anheuser-Busch. The world’s largest beermaker bought 4.5 percent of Tsingtao when it listed in Hong Kong in 1993. Nevertheless, Tsingtao had its financial advisor, HSBC, invite bids. Advised by Morgan Stanley, Anheuser-Busch came up on top, but the message had been sent. Should the preferred suitor balk at Tsingtao’s requirements, there were any number of world-class rivals waiting in the wings.

The deal set a precedent for foreigners wanting a strategic stake in China’s leading companies. One key issue was control. “Tsingtao is a hundred-year-old brand and a treasured state asset,” says Herbert Hui of HSBC’s corporate finance team. “[As] the issuer, you want to maintain control while giving the strategic investor enough economic incentive to come in and add value.” The crux of the deal was the yawning gap between Tsingtao’s China-only A-shares and the free-for-all H-shares. When talks started in May last year, H-shares were trading around HK$2.25; A-shares, the equivalent of HK$8.50.

In the end, Anheuser agreed to pay HK$4.68 apiece for 194 million shares, a 31 percent premium over the H-share price, and HK$4.45 for 114.2 million more. It also agreed to limit its voting rights to 20 percent, even if it accumulates up to 27 percent of Tsingtao. When the deal is completed in seven years, Anheuser will have two board seats and exposure to the world’s biggest and fastest growing beer market. Tsingtao will have raised US$181.6 million and gained access to Anheuser’s technical, marketing and corporate-governance expertise.

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