KKR Nears Deal to Buy Korea Brewer From InBev

RICK CAREW

HONG KONG -- Kohlberg Kravis Roberts & Co. was finalizing an agreement to buy Anheuser-Busch InBev NV's South Korean beer assets for about $1.8 billion late Sunday, according to people familiar with the situation, in a deal that signals the market for leveraged buyouts is reopening in Asia.

The U.S. private-equity firm was named preferred bidder a week ago after competing against Asia-focused private-equity bidders MBK Partners LP and Affinity Equity Partners to buy 100% of AB InBev's Oriental Brewery Co., which is the No. 2 brewer in South Korea by market share after Hite Brewery Co.

Over the past week, the two sides have negotiated terms on the sale, which is expected to be publicly announced Thursday when AB InBev posts its results for the first quarter.

The agreement is seen by deal makers as a key test of Asian banks' appetite for lending to buyout deals.

At least 45% of the purchase price will come from KKR's funds directly, said the people familiar with the matter. The remainder will come from a mix of leveraged loans and seller financing, they said. Four banks -- Nomura Holdings Inc., HSBC Holdings PLC, J.P. Morgan Chase & Co. and Standard Chartered PLC -- are underwriting four-fifths of the leveraged loans, according to one person.

Another person said AB InBev will provide $300 million of additional financing. In turn, AB InBev could receive some equity if Oriental Brewery meets certain targets by the time KKR sells the business, giving it a motivation to continue to support the brewery's development, one person said.

The terms include a payment to Oriental Brewery's union to gain their support for the deal and the continuation of licensing deals for the brewery to produce and import AB InBev brands in Korea, one of the people said. Oriental Brewery attracted strong interest from bidders because it generates strong cash flow; beer sales tend to suffer less than other industries in a recession; and it operates in a duopoly market. South Korea's government currently grants licenses to produce beer only to Hite and Oriental Brewery, known as OB.

The sale of the Korean brewer is part of AB InBev's efforts to sell noncore assets to pay down part of the $45 billion in debt the Belgian brewer took on to finance a $52 billion acquisition of U.S. brewer Anheuser-Busch Cos. last year. AB InBev agreed this year to sell a 20% stake in Chinese brewer Tsingtao Brewery Co. for $667 million to Japan's Asahi Breweries Ltd.