LAST October the world’s largest beer group, AB InBev, announced it was going to make a bid for the world’s second-largest beer group, SABMiller.
Seven months and several conditional deals later, it looks as though AB InBev will in fact be bedding down a beer group that might not even make it onto the list of the top six largest.
It’s also extremely unlikely that the merged entity, referred to as Megabrew, will account for 30 percent of the global beer market, as has been touted by analysts.
That figure is based on a combination of the two groups as they were in October — it doesn’t allow for disposals.
Those disposals will undo most of 30 years of hard work by SABMiller management, who spread out from the African continent in the mid-1990s in search of opportunities to build a powerful global player.
Their search took them first to China and Eastern Europe, then to North America and, most recently, to Latin America.
The combination of an aggressive acquisition strategy and strong organic growth pushed SABMiller to the number two slot in the late 2000s.
If all goes to plan — AB InBev’s plan — most of that work will be undone within months of completion of the AB InBev/ SABMiller merger.
In the best-case scenario, AB InBev, headed by CE Carlos Brito, will pick up about US$21,5billion to set off against its $108 billion mega-deal.
The string of proposed transactions — all conditional on the SABMiller acquisition being approved by various regulatory authorities across the globe and the two sets of shareholders — kicked off with the disposal of SABMiller’s stake in the MillerCoors joint venture to Molson Coors for $12billion.
This proposed transaction was announced within days of the formal release of the terms of the $108 billion SABMiller acquisition.
Not long after that AB InBev announced the sale of a few of SABMiller’s top European brands. Japan’s Asahi Group will buy Peroni, Grolsch, and Meantime for €25,5 billion.
More recently news came in that SABMiller’s central European brands, most notably Pilsner Urquell, were up for sale in a deal that analysts estimate could generate as much as $5 billion to $6 billion for AB InBev.
In between was the sale of SABMiller’s 49 percent stake in the world’s largest-selling beer, CR Snow, to longtime partner China Resources, which held the remaining 51 percent of Snow.
The $1,6 billion price tag on this deal is significantly below the estimated $3billion to $5billion some analysts had forecast.
With regulatory approval from China one of the pre-conditions to the deal, there was little room for AB InBev to haggle on the sale price.
The sale of operations in North America, China and Europe will remove SABMiller as a player in these markets and likely cut about 140 million hectolitres (mhl) from its annual beer sales of about 250mhl.
This will put it way behind Heineken and Carlsberg.
The biggest volume hit will come from the loss of Snow.
This low-margin business added 58mhl to annual sales.
In North America SABMiller’s 38,5mhl of sales in 2015 will disappear, as will most of the 43,6mhl sold in Europe.
Though analysts saw most of the asset disposals as necessary to address competition concerns in the various jurisdictions, the recent announcement about the sale of the central European brands has perplexed them.
“This announcement has come as a surprise to us,” Bernstein’s senior researcher, Trevor Stirling, remarked in a report issued days later.
“We think the disposal may be more about commercial concerns than regulatory ones,” he said, referring to the disappointing performance from central Europe in recent years.
However, it is unclear who would be prepared to buy the assets, other than private equity players.
The obvious contenders, such as Heineken and Carlsberg, would face insurmountable regulatory hurdles.
And so, with just months to go before the expected completion of the Megabrew deal, it is screamingly apparent that AB InBev’s attraction for SABMiller lay in its emerging market operations in Latin America and Africa, for which the company was prepared to pay a large fortune. — Financial Mail SA
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