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Anheuser-Busch InBev NV said it has agreed to sell SABMiller PLC’s Chinese beer business to China Resources Beer Holdings Co., as the Belgian brewer seeks Chinese regulatory approval for its pending acquisition of its biggest rival.

China’s government-controlled brewer has agreed to acquire SABMiller’s 49% interest in the joint venture known as CR Snow in a $1.6 billion deal that would give it full ownership over Snow, the world’s No. 1-selling beer by volume. China Resources and SABMiller have been partners in the joint venture since 1994.

The deal is subject to regulatory approval and contingent upon AB InBev closing its roughly $108 billion acquisition of SABMiller. The Belgian brewer said it expects to do that in the second half of this year.

AB InBev had been expected to arrange for the sale of SABMiller’s stake in Snow since announcing last year its roughly $108 billion takeover of SABMiller, but people familiar with the company’s plan in January said it would try to keep the stake and maintain operational control over the company. Ultimately, it decided to sell rather than keep Snow because holding on to the business could have slowed the regulatory approval process, said a person familiar with the company’s strategy.

The sale of Snow mirrors the approach AB InBev has taken in the U.S. and Europe. In the U.S., AB InBev negotiated a sale of SABMiller’s interest in MillerCoors LLC to Molson Coors Brewing Co. In Europe, it is in talks to sell Asahi Group Holdings Ltd. rights to SABMiller’s Peroni and Grolsch brands.

China Resources had the first option to buy SABMiller’s interest in CR Snow, which will become a wholly-owned subsidiary of the Chinese company.

Taking over Snow would make China Resources the largest brewer in China with a 30% market share, according to industry tracker Seema International Ltd. AB InBev has an estimated 18% market share in China, while Tsingtao Brewery has 22%, Beijing Yanjing Brewery Co. has 13% and Carlsberg A/S has 6%.

Snow’s position as the world’s biggest beer hasn’t added up to big profits for China Resources, which said its beer profits declined 19% to about $97 million in 2014 from about $121 million in 2013.

China is one of the world’s most challenging beer markets because beer prices are so depressed. Earnings before interest and taxes per hectoliter in China are $2, a fraction of the global average of $19 per hectoliter, according to Seema International.

Industry beer volumes declined by 6% last year in China. The decline marks a reversal from prior years when per capita consumption in the country rose to 45 liters from 7 liters over a 25-year span, according to Deutsche Bank.

Without Snow, AB InBev’s China business will continue to focus on its Budweiser and Harbin brands. Volumes of higher-priced beers like those brands fared better last year than lower-priced beers. AB InBev said its beer volumes in China increased 0.4% in 2015, and revenue rose about 8% to $4.2 billion from $3.9 billion in 2014.

During a call with analysts last week, AB InBev Chief Executive Carlos Brito said the company expects the beer industry in China to remain under pressure this year as the economy strains blue-collar consumers. “We are very happy to see that our business is more skewed towards those segments that are growing,” Mr. Brito said.

By Tripp Mickle

Source: MarketWatch