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. Last Updated: 07/27/2016

Wimm-Bill-Dann Buys Far East Brewery

Wimm-Bill-Dann, the nation’s leading milk and juice producer, announced Wednesday it had paid $4 million for a controlling stake in the Vladivostok-based Pivoindustria Primorya brewery.

The Far East purchase is Wimm-Bill-Dann’s latest step in establishing its own beer holding.

The company intends to become one of the top five players on the beer market.

Their first step came earlier this year when the company purchased 59 percent of the shares in the Volga brewery in the Nizhegorod region.

The structure of the new, legally independent holding, which will raise loans separately from Wimm-Bill-Dann, is likely to include a mineral-water-bottling factory, the construction of which has begun in Novgorod.

In addition, a new or existing beer factory in the Moscow region will complement the ventures mentioned, sources say.

Wimm-Bill-Dann spokeswoman Yulia Belova declined to comment Wednesday on the group’s future beer production plans.

Earlier this year, she said her company will invest between $20 million and $30 million in beer production over the next five years.

Wimm-Bill-Dann snatched Pivoindustria Primorya from under the nose of Sun Interbrew.

Sun Interbrew, a joint venture between Belgium’s Interbrew and India’s Sun Brewing, and Russia’s No. 2 brewer, had previously had their sights on the block of shares. Sun Interbrew has nine breweries in Russia and two in Ukraine.

"[Interbrew] also seemed keen to buy the controlling stake, we had been negotiating with them for about a year, but Wimm-Bill-Dann was a lot more active," said Pavel Vasilchenko, deputy director of economics with the Far Eastern Shipping Co.

Until recently, the shipping company owned a controlling stake in the brewery.

Sun Capital, which is a Sun Interbrew shareholder, holds a 20 percent stake in the brewery, but the Sun Capital employee responsible for negotiations with the shipping company declined to comment on what would happen with the stake.

About 47 percent of the shares in Pivoindustria Primorya were transferred to the shipping company in payment for the shipping debts of the Far Eastern Akfes holding.

The shipping company then purchased an additional 4 percent, thus giving it a controlling stake.

While experts say the national beer market still has room to grow, Wimm-Bill-Dann has entered it later than other players.

"Wimm-Bill-Dann is used to being No. 1, but in order to have a more or less serious share of the beer market, one has to produce around 50 million decaliters of beer per year. Significant investments — at least $100 million — must be made.

"It is unlikely that Wimm-Bill-Dann has the necessary funds. Most likely the company is hoping to form an alliance with one of the major international players," said Alexei Krivoshapko, an analyst with United Financial Group brokerage.

Compared to the tens of millions invested by Russian beer majors, Wimm-Bill-Dann’s investments in the new enterprise may seem insignificant.

Vladimir Lagnenko, director with Pivoindustria Primorya, said the brewery needs an $18 million investment.

Initially, Wimm-Bill-Dann plans to limit its financial assistance to $1.5 million for the purchase of raw materials.

Sun Interbrew’s Rosar brewery, located in Omsk and Siberia’s biggest brewery, accounts for only 1.2 percent of the beer market in the Primorye region, according to the Business Analitika agency.

This is nowhere near market leader Baltika, which controls 43.5 percent of the market. Pivoindustria Primorya controls about 7.3 percent of the local bottled-beer market.

The output capacity of the enterprise is 7.2 million decaliters; however, last year Pivoindustria Primorya produced only approximately 4 million decaliters.