The stock market value of Carlsberg's Chinese investment plummets

Chongqing Brewery’s foray outside of its traditional expertise into the realm of biomedicine has (many would say unsurprisingly) lost shareholders a lot of money. Chongqing Brewery’s stock market price in Shanghai Stock exchange had gained nearly 60% since the start of the year and appeared to go exponential right before it all came to a screeching halt on December 5th. Since then the stock has been halted on 10 out of 11 trading days after the stock lost the maximum allowed 10 percent. Danish brewing giant Carlsberg (OMX: CARL A, OMX: CARL B) owns nearly 30% of Chongqing brewery.

Chongqing Brewery acquired a local start-up biotechnology company in 1997 and has since injected money into the development of Hepatitis B vaccine. On December 5th Chongqing Brewery announced that there isn’t much of a difference between the vaccine and placebo, effectively rendering the net present value of the project close to zero (clinical testing is apparently still ongoing). While you can certainly argue that it is a noble cause to try to tackle hepatitis B, a major problem in China, it is mindboggling to say the least to organize such research under the wings of an alcohol maker. However, In Shanghai Stock Exchange, Chongqing Brewery has mainly been valued based on that.

Carlsberg made no mention of the biotechnology business when it acquired shares in Chongqing Brewery in 2008, nor when further joint development was announced. Company officials did however subsequently comment that Carlsberg placed considerable value on the vaccine program in investment calculations.

Technically Carlsberg’s share in Chongqing Brewery has plummeted from over 10 billion DKK to under 4 billion, and Carlsberg’s share has also underperformed, losing more than 5% in that period. As of now Chongqing Brewery is already trading nearly 30% below Carlsberg's purchase price, and it is rather likely that an argument that Carlsberg overpaid can most likely be made once Chongqing brewery's share finds its bottom in the next few weeks. Another big shareholder in Chongqing Brewery, Dacheng Fund Management Co., has reportedly asked for a shareholder meeting to suggest dismissing Chongqing Brewery’s CEO on the basis of poor disclosure of information.