News Focus) Lotte Group likely to enter beer market: analysts

By Nam Kwang-sik
SEOUL, Jan. 15 (Yonhap)-- South Korea's Lotte Group may move to establish its
presence in the local beer market by acquiring the country's second-largest
brewer, market watchers say.
The process of putting Oriental Brewery Co. (OB) back up for sale restarted this
week, three months after it was suspended due to the global economic crisis,
according to the Financial Times, a British economic daily.
InBev, the world's largest brewer by sales, has assigned JP Morgan and Deutsche
Bank to oversee the sale of its wholly-owned Oriental Brewery, the newspaper said
on Jan. 12.
No decision on the sale has been reached, but analysts expect Lotte Group will
make an offer in an attempt to secure a new growth engine.
Yoo Jin, an analyst at Goodmorning Shinhan Securities, said Lotte Chilsung
Beverage Co. will likely take over OB and focus on its soju business, as it
recently acquired Doosan's liquor unit. Soju is a popular kind of South Korean
distilled liquor made from grain or potatoes.
"I believe that Lotte Chilsung will decide on the acquisition of the brewer
within the first half of this year, as the company needs to find a new growth
engine due to its decreased earnings in recent years," Yoo added.
Lotte Chilsung took over Doosan Corp.'s liquor unit for 503 billion won (US$367
million) earlier this month. The purchase expanded Lotte Chilsung's business
portfolio to soju from whisky, soda and fruit juice.
The company's bottom line had been decreasing in recent years due to a fall in
soda and fruit juice sales, which represent 70 percent of its revenue.
Lotte Chilsung posted a net profit of 81.6 billion won in 2005 but the figure
dropped to 72 billion won in 2006 and again to 64.7 billion won in 2007.
"A higher net profit margin in the liquor-brewing business is another reason why
Lotte Chilsung may try to buy Oriental Brewery," Yoo said.
Liquor-brewing businesses usually have an operating profit in the mid-20 percent
range, while soft drink businesses generally post an operating profit of 6 to 7
percent, he added.
Lotte Chilsung, however, has denied the possibility of taking over OB. "Our
official position is that we are not considering buying the beer maker," said an
official at Lotte Chilsung Beverage Co. who asked not to be identified.
The beverage company similarly denied a news report that it had been mulling
acquiring the brewer last November. In sharp contrast, Jeong Hwang, chief
executive of Lotte Chilsung, has hinted that the company has a keen interest in
acquiring OB.
"It is too early to discuss the purchase of Oriental Brewery as the brewery did
not ask us to buy its stake," Jeong said in a meeting where he signed a deal to
buy the liquor unit of Doosan on Jan. 6. "However, it would be a lie to say that
we have no interest."
Another analyst said that Lotte's denial will help prevent the sale price from
going up.
"Lotte's denial is reasonable even if it has an interest in purchasing Oriental
Brewery, because showing its interest will only push up the takeover price," said
Sy Rhoe, an analyst at Samsung Securities Co.
"Lotte is predicted to make up a consortium to buy the brewer due to its higher
sale price," Rhoe said.
The sale price of the brewer is estimated to be from $15 to $20 billion,
according to the Financial Times.
Market watchers believe the acquisition would help Lotte Chilsung compete against
Hite Holdings Co., which owns Hite Brewery Co., the country's largest beer maker,
and Jinro Ltd., the leading soju maker.
Oriental Brewery controls about 40 percent of South Korea's beer market,
following Hite Brewery.
ksnam@yna.co.kr
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