Efes and AB-InBev combine forces
What took them so long to see the light? Negotiations must have dragged on a bit because only on 9 August 2017 brewers AB-InBev and Turkey’s Anadolu Efes announced they have agreed to merge their operations in Russia and Ukraine in an attempt to strengthen their positions in those declining markets.
Ever since AB-InBev finalised its takeover of SABMiller in October 2016, there was a rumour that negotiations went on behind closed doors as to the future of AB-InBev’s 24 percent stake in Efes, which it had “inherited” from SABMiller.
By throwing their lot in with each other in Russia and the Ukraine, as Efes and SABMiller had previously done in 2011, the much needed consolidation of the Russian beer market is finally underway.
Together AB-InBev and Efes will control about 27 percent of the Russian beer market and thus become a more serious contender for market leader Baltika/Carlsberg, whose market share has declined to 34 percent from 40 percent in 2009.
Russians are among the world’s biggest drinkers of alcohol, but beer sales, which grew rapidly after 2000 on the back of investment from international players, have tumbled since 2008 when the government began taking steps to curb drinking, such as raising taxes and restricting sales as well as advertising.
Beer production in Russia was 78 million hl in 2016, down from 114 million hl in 2008. In the Ukraine, beer production stood at 17.9 million, down from 32 million hl in 2008 according to the Barth Report.
In the Ukraine, the overall picture is depressingly similar after years of volume declines. Sun InBev Ukraine with 30 percent of total volume sales remained the leader in 2016, followed by Carlsberg (29 percent). Obolon ranked third (19 percent), ahead of Persha Pryvatna Brovarnya (Oasis Group) with 16 percent.
AB-InBev and Efes announced the non-binding deal without disclosing financial terms. They said the 50-50 merger would result in a new company called AB-InBev-Efes, which will be fully consolidated in the financial accounts of Efes. AB-InBev will treat the business as an equity stake.
According to Efes, the Russian beer market in 2017 is expected to decline in the low single digits.
Aside from saying the combination would strengthen the competitive position of both companies’ brands and create potential for further growth, AB-InBev said in a statement the deal enhanced its relationship with Efes and the value of its stake, now worth around three billion Turkish lira (USD 850 million). Efes’ market capitalisation is USD 3.6 billion.
Analysts have speculated over whether AB-InBev will keep the stake in the long term.
Both brewers will have equal representation on the board of the new company, but Tuncay Ozilhan, Chairman of Anadolu Group and Anadolu Efes, will be its Chairman.
The deal is expected to close in the first half of 2018.
Russia beer market shares (%) first half 2017:
