AB Inbev/SABMiller rumors push Japanese brewers to revisit global strategy, sources say
* AB Inbev-SABMiller merger scenario sparking divestiture pitches
* Asahi and Kirin may be best-placed for acquisitions
* Japanese brewers could be targets in the mid term
Japanese brewers Asahi [TYO:2502], Kirin [TYO:2503], and Sapporo [TYO:2501] have started to strategize on how they will react to a possible tie-up between AB Inbev [EBR:ABI] and SABMiller [LON:SAB], industry sources told this news service.
Specifically, Japanese beer manufacturers are already reviewing pitches from bankers studying possible divestitures from a tie-up between the world’s two largest beer companies, two industry sources and a sector banker said.
“If the merger happens, it will happen fast and [beer manufacturers] need to be well-positioned to act fast,” one of the industry sources said. SABMiller does not waste time when it comes to making decisions on what companies or brands should be divested, the first industry source said. It is likely that quality assets will come up for sale at a relative discount to facilitate speedy divestitures, he continued.
Speed of execution is key, especially for Japanese companies who often struggle with slow decision making, the banker agreed. “They need to do their homework as early as now,” he said.
Japan’s beverage majors could potentially mull acquisitions of SABMiller’s stake in various joint ventures and smaller beer or liquor targets in Southeast Asia, as well as consolidating direct peers overseas and in Japan, the industry sources said. Good, bite-sized assets in the USD 100-200m range could attract the Japanese buyers, the banker said.
The most obvious divestiture candidates resulting from anti-trust issues are SABMiller’s US and China joint venture (JV) partnerships—MillerCoors and CR Snow, respectively. SABMiller has a number of other JVs globally, the first industry source continued.
He also pointed to SABMiller’s Africa-based JVs as a potential divestiture candidate. AB InBev does not have a presence in Africa so the combined entity may decide to forego its operations in the region entirely, he added. If this was the case, Diageo and Heineken, both of which have a strong grasp of Africa’s beer market, may be interested in acquiring the JVs.
The African JVs, though far-flung, would also be stable enough to interest the likes of Asahi and Kirin, a second sector banker said. More importantly, Asahi and Kirin would not want to lag behind Suntory Beverage & Food [TYO:2587], which made headway in Africa with its 2013 GBP 1.35bn acquisition of Lucozade and Ribena, he explained.
In China, CR Snow would probably not interest Asahi and Suntory, which already have the Tsingtao brand, a second industry source said. Asahi and Suntory appear more interested in battling it out over Tsingtao [SHA:600600], the first banker said.
Buy or be bought?
JPY 1.65trn (USD 14bn) market cap Asahi is actively seeking overseas brands as it has yet to establish a strong presence overseas compared with Suntory or Kirin, the first industry source said. With cash and equivalents of roughly JPY 45bn as of 30 June, 2014, Asahi is best placed out of the major brewers for mid- to large-sized acquisitions as it has the strongest balance sheet and is not overextended, the first sector banker said.
Kirin also wishes to match Suntory’s USD 16bn acquisition of US-based Beam with a large overseas buy to get back in the game, the second banker said. Rather than mid-sized candidates, it would likely be interested in larger targets in developed markets, such as MillerCoors.
While a major shakeup in Southeast Asia is not expected, there are smaller businesses that could be logical targets, a third sector banker said. Diageo and Heineken have a joint venture in Malaysia, Guinness Anchor, which Diageo should consider selling to focus on its higher margin liquor business, he added.
Without a major acquisition under its belt, Kirin leaves itself more susceptible to being targeted by larger global players, the second banker and one of the industry sources said. Kirin has a JPY 1.39trn market cap.
Kirin’s core beer business is losing domestic market share, and it knows that it would have to consider targeting a giant like Heineken to step up its position, the first two bankers said.
If SABMiller is able to ward off AB InBev, then the prospect of Kirin becoming a target becomes more likely, the second banker said. As Heineken has already rejected SABMiller’s offer, the South African brewer may seriously mull other players like Kirin, Carlsberg or Diageo to retain its independence, they said.
Suntory’s former president, Nobutada Saji, acknowledged the possibility of a tie-up between Suntory and Kirin, after Takeshi Niinami was appointed as his replacement, July news reports said.
Sapporo would also need to reconsider its beer strategy in the event of a SABMiller/AB InBev tie-up, a third and fourth industry source said.
Pokka Sapporo Food & Beverage’s Pokka brand is extremely popular in Asia. Sapporo beer also holds the No.1 share among the four Japanese majors in the US beer market. However, its less core property segment is responsible for a significant share of its profits.
Bidders for Sapporo could be put off by the property-heavy business and a management team that is likely to be reluctant to sell, they said.