Odds are low for an acquisition of SABMILLER
SAB LN: GBP 36.61; HEIA NA: Eur 60.00; CARLB DC: DKK 545.50; ABEV: US$ 6.80; BUD: US$114.45
September 16, 2014
Contrary to market expectations, we do not believe that SABMiller is a potential acquisition candidate for Inbev or anybody else, simply because in this cycle, SAB is the most overvalued stock among major brewers. The attractiveness of SAB lies in the fact that the company is not family controlled and might be more vulnerable to an approach, including a hostile one. SAB’s largest shareholder is Altria (ie old Philip Morris) would probably be a seller at the right price. Nevertheless, we believe an acquisition by Inbev would be value destructive in our view. Moreover it would raise anti-trust issues. On the other hand, Heineken and particularly Carlsberg are attractive targets from a relative value and size point of view. However, both are family controlled and would require a friendly deal. Up to now, both companies have not been up for sale. Both companies may find it difficult to grow and compete vs. SABMiller and Inbev and could be amenable to a high premium deal, although we view that as a relatively low probability event in the short-term even though it would make sense. Our favorite stock would be Carlsberg. Our top trade in the sector is long ABEV / short BUD.
Recommended trades in the global brewery sector:
1. Long ABEV / Short BUD
2. Long ABEV / Short BUD pro-rata of cap structure = net short bias / long Carlsberg (CARLB DC)
(= long 60 abev / short 10 bud ; long 14 carlb dc is the rec. trade structure).
3. Long Carlsberg (CARLB DC) / Short SAB LN
We include the ABEV/BUD trade in TITS and TTIP.
FULL REPORT ATTACHED
Special Situations: Brewing deals