Anheuser-Busch InBev said it agreed to sell its South Korean Oriental Brewery to private equity firm Kohlberg Kravis Roberts & Co for $1.8 billion, allowing the world's largest brewer to repay debt.

If completed, the deal would be the biggest private equity purchase in Asia-Pacific excluding Japan since KKR bought Australia's Seven Network for $2.4 billion in late-2006, according to Thomson Reuters data.

In a joint statement, the Belgian beer company and New York-based KKR said AB-InBev would grant KKR exclusive licenses to distribute certain brands in South Korea, including Budweiser and Hoegaarden.

The deal finally gives a Western private equity firm the chance to put a big chunk of cash to use in Asia after a long deal drought led some buyout shops to downsize or relocate.

AB-InBev said it expects the impact on recurring results to be immaterial and expects a non-recurring capital gain of around $500 million. The Belgium-based brewer on Thursday announced a better-than-expected increase in quarterly profit.

The deal allows AB InBev to lower its debt level and gives KKR a company with 40 percent share of a $2.8 billion beer market duopoly. No.1 brewer Hite <103150.KS> has 60 percent share.

The deal is positive for Hite as it reduces the possibility of an all-out marketing war, said Karen Choi, analyst at Woori Investment & Securities, recalling a damaging marketing war between Hite and OB in 2005-06. KKR is likely to focus more on profitability than expanding market share.

KKR, the firm that pioneered the leveraged buyout more than three decades ago, will also have steady cash flows to help pay down its debt used to make the purchase.

OB's earnings before interest, depreciation, tax and amortization (EBITDA) -- a measure of cash flow -- were around $200 million, sources close to the deal said previously.

One source involved said on Thursday that, considering the financing package, KKR is paying around 8.5 times EBITDA.

The same source said KKR will be paying around 45 percent of the purchase price in cash, a huge equity check for the private equity industry. Buyout firms have typically paid around 25 percent in cash and borrowed the rest.

AB InBev is also offering $300 million in Pay-In-Kind financing for the deal, the source said. The source was not authorized to speak publicly about the financing. The rest of the money will come in loans from banks.


A completed deal for OB would mark KKR's first deal in South Korea and the first major private equity deal since the financial crisis hit Asia last year.

Several large private equity firms, KKR included, raised billions of dollars to invest in Asia, only to find deals harder to come by as economic growth slowed, and local governments and executives resisted Western buyers.

Asia-Pacific private equity deal volume year-to-date has fallen more than 83 percent to $1.3 billion from a year ago, according to Thomson Reuters.

AB InBev put OB up for sale this year, initially at around $2 billion bankers have said, as part of an effort to raise money to repay loans used in InBev's $52 billion buy of Anheuser-Busch last year.

The OB auction attracted companies such as South Korean retail giant Lotte Group, but was ultimately fought out between private equity firms, also including Affinity Equity Partners and MBK Partners, sources have previously told Reuters.

AB-InBev has a $7 billion loan due in November that was part of $45 billion in borrowing InBev took out to buy U.S. brewer Anheuser-Busch.

JPMorgan and Deutsche Bank ran the auction process. Lazard also advised the company, AB InBev said on Thursday.

KKR said Goldman Sachs, HSBC, Nomura and ING advised it. KKR has JPMorgan among its lenders too, which also include Standard Chartered HSBC Nomura <8604.T> and others, sources close to the deal have said.

(Editing by Chris Lewis & Ian Geoghegan)