AB InBev could slake investors’ takeover thirst with SABMiller
Carlos Brito, head of Anheuser-Busch InBev, sells one in five beers globally, including Budweiser, Corona and Stella Artois, but the 54-year-old Brazilian may have an appetite for more. Heightened expectations that he may be considering a bid for SABMiller have helped the UK-listed brewer’s shares jump 27 per cent since this year’s February low. The rise also reflects diminishing fears about risks in emerging markets, which account for 75 per cent of SABMiller’s sales.
Shares in Diageo, the maker of Johnnie Walker scotch and Guinness, which have underperformed the market this year, also received a boost from a suggestion by analysts at Barclays that SABMiller could be plotting a merger with its spirits rival to prevent an anticipated AB InBev approach. Takeover talk has intensified, partly because the strength of mergers and acquisitions this year in food, spirits and healthcare is expected to spill over into beer. “There is one more round of consolidation to go in the beer sector,” said one prominent M&A banker, arguing that the sector is less consolidated globally than some others. The top four brewers – AB InBev, SABMiller, Heineken and Carlsberg – account for 49 per cent of global beer sales and 60 per cent of operating profit, according to Bernstein Research. But some investors are voicing opposition to the idea of a mega merger between AB InBev and SABMiller, which makes Peroni, Grolsch and Miller Lite. These investors fear value would be destroyed through the creation of a company with a market capitalisation close to $300bn on current valuations, making it one of the world’s five biggest. “Ferrets run quicker than elephants. SAB at $80bn will be able to grow faster than SAB/ABI at $300bn,” said one top 10 investor in both companies. On paper, a tie-up between AB InBev and SABMiller looks good, which is why the idea has been fermenting for some years. It would address AB InBev’s main problem of a slowdown in growth in beer volumes, mainly due to its reliance on the US. These have fallen from more than 5 per cent annually in the five years to 2012 to 2-3 per cent, according to Euromonitor. Taking over the UK group would allow AB InBev to inject SABMiller’s fast-growing markets – especially in Africa where AB InBev has virtually no presence – into its portfolio. AB InBev is highly acquisitive and is paying down the debt incurred by 2012’s $20bn takeover of Mexico’s Grupo Modelo, freeing it up to mastermind another deal. However, some investors and bankers, who know all three companies but did not want to be cited, believe that although AB InBev may be seeking a new deal, SABMiller is not the right one. They point to at least two potentially large obstacles to an imminent bid. The first is SABMiller’s joint ventures – in the US, Africa, Turkey and China – which could have change-of-control clauses. Competition issues in the US and China, would oblige divestments, potentially leaking value to the joint venture partners in those countries. The second obstacle is price. AB InBev would need to pay a premium for SABMiller of at least 30 per cent, according to bankers and analysts, on top of its already high valuation. “When we think about ABI, we think about cost-cutting,” said analysts at BTIG Research. “SAB is a well-run company that has cost-cutting potential but not to the extent seen in prior ABI acquisitions.” This may account for the wide range of analysts’ estimates of potential synergies – from $1bn to $2.5bn. Another banker, however, points out that since 40 per cent of SABMiller’s shares are in the hands of two entities, “you could get the main parties round the table on a Friday and announce the deal on the Monday”. Altria, the US tobacco group, which has 27 per cent stake, and Colombia’s billionaire Santo Domingo family, with 15 per cent, are likely to prefer equity to avoid a large capital gains tax bill. The Santo Domingos may also want some cash to invest in their other business interests, which include telecoms, food and coffee. “The cultural differences between AB InBev and SABMiller are overdone. These guys already know each other,” said another banker referring to DE Masterblenders, the coffee group which is merging with Mondelez and in which the Santo Domingos and some AB InBev directors are shareholders. Asked this year whether a SABMiller-AB InBev deal makes sense, Alan Clark, SABMiller’s chief executive, said: “Someone somewhere could probably get the numbers to work . . . There would be value loss and value destruction because they’d know that they’d have to sell the US though.”