Anheuser Busch and Tsingtao Brewery are forming a Strategeic Alliance

Under the agreement, Tsingtao will issue convertible bonds to Anheuser-Busch in three installments valued at approximately US$ 182 million (HK$ 1.416 billion). As this debt converts to equity over seven years, Anheuser-Busch's economic interest in Tsingtao will increase from its existing 4.5 percent to 9.9 percent initially, then to 20 percent and ultimately to 27 percent, all held in the form of “H” common shares listed on the Hong Kong Stock Exchange.

The Chinese government will remain the largest shareholder in Tsingtao, holding a 30.56 percent share after all bonds are converted. Anheuser-Busch will be the largest non-government shareholder. Anheuser-Busch will receive proportional representation on Tsingtao's board of directors, board committees and supervisory board.

Anheuser-Busch will pay US$ 116.4 million (HK$ 907.9 million) at closing and an additional US$ 65.2 million (HK$ 508.3 million) within 12 months. The capital contributed by Anheuser-Busch will be used to improve Tsingtao's brewing assets, construct new brewing facilities and make future acquisitions.

“In Tsingtao, we have found a partner that shares our heritage in brewing excellence and our vision of the future in China,” said Patrick Stokes, president and chief executive officer of Anheuser-Busch Cos., Inc. “China holds tremendous potential in the global beer industry. This alliance gives Tsingtao the support it needs to strengthen its leadership of the China beer market and increase its exports while giving Anheuser-Busch a greater role in a critical international market.”

Mr. Li Guirong, chairman of Tsingtao, commented: “Tsingtao has the goal of becoming a multinational company and will continue its fast growth and work to become one of the top 10 companies in the world brewing industry within the next 10 years. This partnership unites two premier brewers in an exceptional alliance. Anheuser-Busch will bring advanced market management skills, corporate governance, technology, funds and other resources into this alliance, which will greatly strengthen Tsingtao's competitiveness, profitability and help Tsingtao continue its sustained and fast growth. Tsingtao's production bases, sales and distribution networks and its successful operational experience in the China market will also benefit Anheuser-Busch in the growing Chinese economy and beer industry. It is a forceful combination that will address the dynamic change we will see in China in the coming years.”

The alliance builds on the nine-year cooperation between the two brewers. In 1993, Anheuser-Busch purchased 45 million “H” shares on the Hong Kong Stock Exchange for a 5 percent share, which was later diluted to a 4.5 percent share with the issuance of “A” shares on the Shanghai exchange.

The fast growth of the Chinese economy has supported the great expansion of its consumer market. The China beer market is the world’s second largest at 220 million hectoliters and has been growing annually at 6 percent.

Tsingtao holds a 12.8 percent share of the China beer market. Its flagship brand is Tsingtao, the number-one beer brand in China and the most famous Chinese brand in the international market. Tsingtao beer is sold in more than 40 countries and regions in the world. Tsingtao export volume accounts for more than 50 percent of the total beer exports from China.

Tsingtao, based in the city of Qingdao, brews its beer in 17 provinces in China and sells it in all key markets, including Beijing, Shanghai, Guangdong, Shandong, Shanxi, Jiangsu and Fujiang. Sales in 2001 were US$ 637 million (RMB 5.3 billion), selling 21 million U.S. barrels (25 million hectolitres). For the first half of 2002, sales were US$ 420 million (approximately RMB 3.5 billion), selling 12.8 million U.S. barrels (approximately 15 million hectolitres).

Anheuser-Busch is based in St. Louis, Missouri, USA. Its Budweiser brand is the world's best-selling beer, locally brewed in 10 countries and sold in more than 80 others worldwide. Anheuser-Busch total sales in 2001 were US$ 15 billion, selling 124 million U.S. barrels (146 million hectolitres), including its proportionate share of equity partners’ volume, giving it an 11 percent share of the global beer market. For the first half of 2002, sales were US$ 7.820 billion, selling 64.4 million U.S. barrels (75.5 million hectolitres), including its share of equity partners’ volume.

Anheuser-Busch also owns 98 percent of the Budweiser Wuhan International Brewing Co. in Wuhan, China, where its Budweiser and Bud Ice brands are brewed. Budweiser is the leading premium international beer sold in China. The Tsingtao alliance will be separate from Anheuser-Busch's Budweiser business and there are no plans to merge the two companies.