Shares of Kingway Brewery Holdings rose 7 per cent yesterday after the company announced it was selling its brewery business for 5.58 billion yuan (HK$6.87 billion) to China Resources Snow Breweries and a special dividend was proposed.
The Guangdong-based Kingway was up at HK$3.95 per share, the highest since it started trading in 1997, before retreating to HK$3.51 .
The stock became a hot favourite on the trading floor after Kingway proposed a special cash dividend of HK$1.71 billion, or HK$1 per share.
However, China Resources Enterprises, which has a 51 per cent stake in China Resources Snow Breweries, fell 3 per cent to HK$26.1.
Jessie Guo, an analyst at Jefferies Equity Research, wrote in a note on the deal: "This deal helps CRE to consolidate its market share, especially in Guangdong province. However, the acquisition valuation looks high."
Guo's note said CRE has cash holdings of HK$24.4 billion and the balance sheet is strong enough to pay for the deal.
Assuming the acquired breweries contributed 85 per cent of Kingway's sales, Guo said, the acquisition translates into 6.8 yuan for each litre of sales in 2011 - higher than other major acquisitions of similar scale in the Chinese beer industry.
Anheuser-Busch InBev acquired Weixue Beer for 530 million yuan, or 3.5 yuan per litre, in 2011. Jefferies said the deal was priced with a large premium on Kingway's total enterprise value of 4.7 billion yuan.
Kingway said it would focus on property development after selling its distribution network and seven breweries. It will redevelop its Plant 1 site in Buxin, Shenzhen, the only brewery it is not selling as part of the deal, into a retail and commercial complex.