Hite Gets Conditional Approval
of its Acquisition of Jinro
Heralds the birth of a mega-alcoholic beverage group in beer and distilled liquor markets

The Fair Trade Commission (FTC) has given conditional approval of the best-selling beer brand Hite's deal to acquire Jinro, Korea's largest distilled liquor maker.
FTC held its full-member session on July 20 and approved Hite Brewery Co.'s acquisition of Jinro Co., but attached four conditions to give the green-light for the 3.43 trillion won takeover, the largest takeover in Korean corporate history.
As for the hottest issue over whether beer can be substituted for soju or vice versa, the antitrust watchdog ruled that beer and soju are separate markets; not substituting for each other said an FTC official.
To ensure fair competition, FTC said, Hite and Jinro will be required not to raise their prices beyond the consumer price rate for the next five years. The two will have to maintain their existing and own independent marketing personnel departments for a five-year period. They will be required to obtain FTC approval over their detailed plan to prevent unfair practices using their dominant position within three months, while the two companies will be also required to present to FTC a biannual report on inventory for five years. FTC's conditional approval heralds the birth of Korea? mega-alcoholic beverage group comprising Hite, with a 58 percent share in the local beer market, and Jinro, with a 55.4 percent share in the distilled liquor market. Last year, the two companies posted approximately 1.5 trillion won in aggregate sales and some 330 billion won in combined net income.
A senior Hite official said his company will humbly accept FTC's decision and focus on normalizing Jinro's operations. Hite will put more energy into expanding its overseas presence to such markets as China and Japan, following its acquisition of Jinro, while trying to list Jinro on the bourse by 2007, the official noted.
Chung Jae-won, an analyst with CJ Investment & Securities said FTC's conditional approval would not have a negative impact on share prices of Hite. He suggested the buy position for Hite shares, saying that Hite? conditional acquisition would have positive and negative sides, but it would bring about more positive and synergetic effects from a long-term perspective.
In particular, some provincial soju makers have put up opposition against Hite Brewery's acquisition of Jinro, saying that the provincial soju makers, which account for 80 to 90 percent of their markets, may be threatened by Jinro's brand "Chamisul"if the brand is marketed through Hite Brewery's beer marketing network in provincial areas. Hite Brewery wields more clout through its marketing network in provincial areas than in the Seoul area. If Hite Brewery acquires Jinro, industry analysts say, Hite Brewery and Jinro would reciprocate each other by allowing Hite Brewery to utilize Jinro's marketing network in the Seoul area and permitting Jinro to capitalize on Hite Brewery's strong marketing networks in provincial districts.
Hite Brewery commands a 58 percent share of Korea's beer market, outperforming overall considerably over its archrival Oriental Brewery (OB), but OB is leading particularly only in the Seoul area with a 52 percent share. On the other hand, Jinro, which has a 56 percent share of the local soju market, is making a strong showing in the Seoul with a 92.7 percent share, but not in provincial markets.
Hite Brewery takes the lead in provincial districts, except the Chungcheong area (46 percent share). The market share of the beer maker is 71 percent in the Jeolla area; 57 percent in the Gangwon area; and 81 percent in the Gyeongsang and Jeju districts. Take for instance the Gangwon area where Doosan? soju brand "Sansoju"enjoys a 54.1 percent, not Jinro's "Chamisul" While the soju market of the Gyeonsang area is dominated by three different local soju makers: local soju maker Kumbokju's brand "Chamsoju" commands a 94.2 percent share in North Gyeongsang Province; Muhak's brand "White" has a 80 percent share in South Gyeongsang Province; and Daesun's brand "Siwon"with an 86 percent portion.
The Hite-led consortium was selected as the preferred bidder on April 1 out of eight bidders competing for the race to acquire the debt-ridden yet lucrative distilled liquor maker. The Korean Teachers Credit Unit, the Military Aid Association, Korean Federation of Community Credit Cooperatives and a private equity fund of Korea Development Bank are participating in the Hite-led consortium.
Earlier, following the selection of the Hite-led consortium as the preferred bidder for the acquisition, Hite Brewery Chairman Park Moon-deuk dismissed local soju makers'worry over its acquisition of Jinro, saying that the Hite-led consortium is aimed at making a foray into the global market in the case of opening the alcoholic markets, including soju, to foreign competition, not limiting its activity to the local market. Hite Brewery, which has been around on the alcoholic market for some 70 years, has a good understanding of the difficulties facing local alcohol beverage makers, and if Hite Brewery manages to acquire Jinro, the beer maker will have a win-win strategy by collaborating with provincial alcoholic beverage makers, Chairman Park said.
Hite Brewery officials said the local alcoholic beverage market is expected to undergo tremendous changes in the wake of signing Free Trade Agreements in the years to come, so Hite Brewery's acquisition of Jinro does not see a violation of the Fair Trade Act. They cited a recent case in the global whiskey market in which France's Pernod Ricard, the maker of the renowned whiskey brand Civas Regal, is seeking to acquire UK's Allied Doecq, the maker of Valentine. The local beer, soju and whisky markets are likely to be roiled by a series of M&A attempts.???? Hite Brewery also has made its presence known in the local whiskey and bottled water markets. nw

Hite Brewery Chairman Park Moon-deuk
Hite Brewery headquarters