KKR's Korean brewery win fuelled by hot soup and soju sessions

Tue Jan 21, 2014 1:05am EST
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By Joyce Lee and Stephen Aldred

SEOUL/HONG KONG (Reuters) - A story Oriental Brewery boss Chang In-soo often tells about his days as a soju salesman is how he and two clients once worked through 29 bottles of the traditional Korean rice liquor at a single sitting. He feels bad, he says, they didn't manage 30.

His stamina in capturing 60 percent of the local beer market has been just as eye-catching, helping to explain why Anheuser-Busch InBev SA (ABI.BR: Quote) has agreed to buy back the brewer for nearly three times the price it achieved five years ago when it sold it to private equity investors.

"'The war is won on the ground', that is what Chang knows, he motivates the sales guys to go out, pound the pavement," said a source who knows him.

One anecdote colleagues tell of Chang's motivational style recalls him turning up with his wife at 5 a.m. in the depths of the Korean winter to give out bowls of hot soup to dockworkers and drivers toiling in the freezing loading bays.

Oriental Brewery (OB) has certainly performed well in the five years under KKR & Co (KKR.N: Quote) and Korea specialist Affinity Equity Partners. Core profit (EBITDA) increased 25 percent last year to $500 million - 2.3 times greater than when they bought it from InBev, which had retained an option to repurchase.

The $5.8 billion that AB InBev is paying to buy it back makes it the record inbound M&A deal into South Korea, ahead of Standard Chartered's (STAN.L: Quote) $3.3 billion agreement to buy Korea First Bank in 2005, Thomson Reuters data shows.

But if the returns made were stellar - the deal announced on Monday was Asia's biggest ever private equity sale via M&A - the risk they took in buying the firm, in the depths of the financial crisis, were great.

The private equity partners set about reducing costs and boosting market share with new products and an aggressive sales drive. Celebrity endorsements from the likes of rapper Psy have been used to help target a younger audience for its Cass brand.   Continued...

Bottled beers produced by South Korea's Oriental Brewery Co are displayed at the liquor section of a market in Seoul January 20, 2014. REUTERS/Kim Hong-Ji