AB-InBev sells Australian unit CUB to Asahi

Australia | It’s a fire sale by another name. After its aborted IPO on 12 July 2019, AB-InBev has moved quickly and sold its Australian unit CUB to Japan’s brewer Asahi for an enterprise value of USD 11.3 billion.

The transaction was announced on 19 July 2019. The sale of Carlton & United Breweries (CUB) will allow AB-InBev to reduce its USD 106 billion debt mountain.

This is the third time that the Japanese group has scooped up assets from AB-InBev. After AB-InBev’s takeover of SABMiller, Asahi acquired SABMiller’s western and central European units, including brands like Pilsner Urquell, Peroni and Grolsch, in 2016 for a total of USD 11 billion.

The sale of CUB includes a host of local mainstream and craft beer brands, as well as the rights to sell in the country AB-InBev’s global brands, such as Beck’s, Corona Extra and Goose Island.

The Wall Street Journal reports that AB-InBev was able to move quickly because Asahi had made an offer earlier for the Australian business, but was rebuffed because AB-InBev preferred to pursue the IPO route. Once the listing failed, AB-InBev contacted Asahi almost immediately.

With CUB, AB-InBev is offloading a mature part of its Asian operations. Any renewed attempt at an IPO will likely include only the higher-growth countries of China, India, and Vietnam. AB-InBev said the price tag on the CUB deal represented a valuation of 14.9 times profits (EBITDA), which analysts called a favourable multiple. It implies that CUB makes a profit of over USD 750 million annually.

Consider this: When AB-InBev bought SABMiller, they only paid an estimated 13 times EBITDA for CUB. Now they are selling CUB for 15 times EBITDA. Insiders find this pretty amazing, given Australia’s beer market has not seen any growth for a while, and 650 local craft brewers are nipping at the top end margins.

However, Japanese brewers are renowned for paying over the top to clinch a deal, prevent an auction, and stop a competitive bid.

Most likely, the deal will fly through the Australian regulator and will be completed early next year.

People in the know expect that in the long term there will be more irrational discounting in the Australian beer market, stagnant earnings and even more craft brewers entering an already cluttered market. 

Asahi has rapidly expanded overseas in recent years, and its purchase of CUB fits into a broader strategy to build its global reach. In Japan, Asahi has had to contend with 14 straight years of declines in beer sales. In January 2019, Asahi announced it would pay USD 330 million to buy the brewing business of Fuller’s in the United Kingdom.

The deal could help Asahi build its presence in Australia, where it has already done five deals in the non-alcoholic segment since 2009. The market accounts for about 25 percent of its overseas revenue, it was reported.