AB InBev and SABMiller: get another round in
Undoubtedly a big deal, but what next for the acquisition machine?
Quirky names. Hand drawn labels. Funny flavours. Craft beer is big news in brewing these days. Customers seem to love the small guy. What better backdrop, then, for the world’s largest brewer by volume to attempt to buy the world’s second largest?
Everything about AB InBev’s approach to SABMiller is big. Take the combined enterprise value of $306bn, or the combined net profit of $13bn that the two made last year.
The benefits of a deal are also big. For AB InBev, the deal would fill in gaps in its portfolio, most notably in Africa where SABMiller generates 29 per cent of its annual revenues, but also in parts of Latin America. And the cost savings would also be hefty. Assume AB InBev can strip out 13 per cent of SABMiller’s costs — the level promised when it bought Mexico’s Grupo Modelo in 2012 — and there could be savings of $2.3bn. AB InBev has a good record of achieving promised savings. There should be few doubts about its ability to deliver.
But the challenges are also big. Start with the price. If AB InBev offers a 30 per cent premium, it would have to bid $98bn for SABMiller’s shares as well as taking on its $10bn of net debt. AB InBev already has net debt of 2.5 times earnings before interest, tax depreciation and amortisation. Assuming the deal is all in cash (as InBev’s takeover of Busch in 2008 was) and ignoring cost savings and disposals, that could rise to over 6 times.
The other challenge is the regulators. AB InBev had a job getting the Modelo deal past US authorities. SABMiller’s 50 per cent stake in MillerCoors would likely have to be sold. Assets in China may also have to go.
But the minutiae of the deal should not distract attention from the really big question. AB InBev is an acquisition machine that has swallowed up Interbrew, Anheuser-Busch and Grupo Modelo. Its shareholders should be thankful — over the past five years its shares have more than doubled against SABMiller’s 50 per cent rise (ignoring Wednesday’s moves).
But after SABMiller, there is nothing in the world of brewing big enough to make a difference for AB InBev. So what does chief executive Carlos Brito do then? Move into spirits? Move into foods? Or perhaps just try to prove that acquisition machines can thrive even without the deals. Either way, by then all the excitement in the industry might well have drifted down to the quirky names and funny flavours.