Russia: Turkish brewery Efes buys Russian Krasny Vostok

Efes Breweries International NV (EBI), the Netherlands-based unit of Turkey's Efes Beverage Group, announced on January 25 it had signed an agreement to buy 92.34 % of Russian brewery Krasny Vostok in a deal putting Krasny Vostok's enterprise value at about US$ 390 million, Reuters, AFX and AP have communicated.

Efes said in a regulatory news release issued by the London Stock Exchange that the deal was subject to regulatory approval.

"If we take the brewery's capacity, this is the lowest price possible," said Yelena Borodenko, sector analyst at Alfa Bank in Moscow.

Natalia Zagvozdina, a consumer goods analyst with the Renaissance Capital investment bank, called the price of US$39 (euro31.78) per hectoliter "very cheap," compared to nearly US$50 (euro40.74) per hectoliter paid by Dutch brewer Heineken, which has snapped up several major Russian brewers.

The deal values Krasny Vostok at $39 per hectolitre of capacity -- less than a third of the price paid by Belgium's InBev for Russian premium brewer Tinkoff last summer.

London-listed Efes Breweries International, which is 70 percent owned by Turkish-based Anadolu Efes, rose 12 % on Wednesday, January 25, as investors welcomed its purchase of 92 % of Russia's Krasny Vostok. Its Istanbul-listed parent Anadolu Efes closed the session 3.3 percent higher.

The EBI commented the acquisition will increase its total annual brewing capacity in Russia to approximately 18 mln hectolitres and total market share to around 10 %. Annual malt production capacity will increase from 46,000 tonnes to 139,000 tonnes.

"(The acquisition) will enable us to solidify and build on our 4th position within the dynamically consolidating (Russian) market through increased capacity, extensive geographical coverage, lower cost base and higher sales volume," CEO Ahmet Boyacolu said in the statement.

"By expanding our presence in the economy segment in addition to our strong positioning in the premium and mainstream segments, we will have a significant competitive advantage," Boyacolu said.

Krasny Vostok has a 3 % share of the Russian market by volume, its annual brewing capacity is 10 million hectolitres and it operates two breweries in Kazan in central Russia and in Novosibirsk in Siberia and owns three malting facilities in Kazan with an annual production capacity of 93,000 tonnes. Krasny Vostok's brand portfolio consists of an upper mainstream brand "Solodov" and economy brands, including "Krasny Vostok", "Zhigulyovskoe", and "Yershistoe".

Efes has long been looking for either an acquisition or a greenfield project in Siberia or the Russian Far East to cut transportation costs in a country which stretches across 11 time zones but has poor infrastructure. EBI, which derives about 80 percent of its revenues from Russia, has three local breweries -- in Moscow, in Ufa in the southern Urals and in Rostov in the south of the country. Krasny Vostok also owns three malting facilities in Kazan with an annual capacity of 93,000 tonnes.

Russia is the world's fifth-largest beer market, which analysts expect to expand by between 5 percent and 8 percent in coming years.

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