Japanese brewer Asahi Group is buying the British beer business of Fuller, Smith & Turner, seizing the opportunity to further its overseas reach as other companies wrestle with growing uncertainty over Brexit.
The purchase, worth £250 million including debt, raises Asahi's British presence by adding London Pride ale, Frontier lager and Cornish Orchards cider to its Asahi Super Dry, Peroni Nastro Azzurro and Meantime brands.
Japanese firms have spent more than £46 billion in Britain, encouraged by successive British governments since Margaret Thatcher promising them a business-friendly base from which to trade across Europe.
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Asahi plans to continue operations at the Griffin Brewery in Chiswick, London, where beer has been made since 1654, while a long-term supply agreement and strategic alliance between the firms will allow Fuller's pubs to continue to sell its beer.
The global beer market, dominated by big players such as Anheuser-Busch InBev and Heineken, has been challenged lately by the rise of independent craft brews and shifting consumer tastes favouring wine and spirits.
However, Mintel estimates that the value of Britain's beer market rose by 3.9% to £18.5 billion in 2018.
"This transaction is unexpected but a welcome one – realising a significant value for shareholders and exiting a challenging beer market," Liberum analyst Anna Barnfather said.
Barnfather said her target price of 1050 pence for Fuller's had valued the brewery division at around £125 million. Asahi confirmed that the purchase includes the freehold of the Chiswick brewery.
Fuller's said the disposal will enable it to focus on pubs and hotels, which generate 87% of its operating profit, and provide capital to invest organically and via acquisitions.
"Fuller's has for years had to navigate very high taxes, a decline in the nation's drinking and austerity which has hit pub attendance," Jonny Forsyth, associate director, food & drink at Mintel, told Reuters, adding that the brewer's traditional ale faced competition from the rise of edgier London craft beers.
Global London Pride?
Asahi said the addition of the Fuller's brands strengthened its position as a leader in premium beer, and that it would use its global footprint to build them across the world.
"Brexit could actually play to Asahi's advantage because it is putting pressure on ... the pound which makes exports cheaper," Forsyth said, adding that Asahi would also have the option of moving production overseas to overcome any tariffs.
Forsyth said the Fuller's deal, which is expected to close in the first half of 2019, could also kick start a year of consolidation, driven by AB InBev's competitors trying to close the gap between themselves and the world's top brewer.
Friday's sale price represents a multiple of 23.6 times core earnings of £10.6 million for the year ended March and Fuller's said it would return between £55 million and £69 million of the proceeds to its investors.
Rothschild & Co is acting as sponsor and sole financial adviser to Fuller on the proposed sale, while Nomura advised Asahi Europe.