SABMiller and Efes join forces

A shrewd move which should have led to some serious chin scratching in Brussels and Amsterdam. The line-up between SABMiller and Turkish Efes not only allows the two also-rans in Russia to better compete against market leader Baltika, it also adds another protective layer to SABMiller and makes the world’s number two brewer less easy to take over.

On 19 October 2011 SABMiller said it would transfer its Russian and Ukrainian beer businesses, worth USD 1.9 billion (EUR 1.4 billion), to Anadolu Efes Biracilik & Malt Sanayii and take a stake in the enlarged company to create Russia’s second-biggest beer maker.

The agreement implies an exit multiple of about 12.7 times estimated EBITDA according to analysts, which is broadly in line with recent deals in the brewing industry.

SABMiller will exchange its Russian and Ukrainian units for a 24 percent holding in Istanbul-based Anadolu Efes. The Anadolu Group will retain control of the company with a reduced stake of 42.8 percent.

Probably thanks to its more flexible approach to doing business, Anadolu Efes is going to become the vehicle for both groups’ investments in Turkey, Russia, the Ukraine, CIS, Central Asia and the Middle East.

SABMiller will be represented on the Anadolu Efes Board and will have customary minority investment protection rights.

In addition, both parties have agreed to provide appropriate rights of first offer at fair market value in the event of either party seeking to sell any shares in Anadolu Efes.

Combining their Russian units was a move long overdue. The Russian beer market still has far too many players and, what is worse, has been declining for a number of years – for various reasons, not least interventions by government.

Carlsberg, which owns the market leader Baltika, said in August that the Russian beer market may decline at a “low single-digit” rate this year before resuming growth of 3 percent to 5 percent after (!) 2013. In other words, it may return to growth or it may not.

The move will give the combined group a volume share of the Russian beer market of about 18 percent which roughly equals AB-InBev’s. However, thanks to their attractive (i.e. more premium) brand portfolios, the new group will have a share ahead of AB-InBev in value terms.

In the Ukraine, whose business environment for brewers is rougher even than Russia’s, Efes will take over the management of SABMiller’s brewery in Donetsk, eastern Ukraine. SABMiller entered the Ukraine late – in 2008 – and has struggled since with corruption, bribery, incompetence or outright theft in a country whose business and political culture is no longer trusted, insiders say.

Obviously, SABMiller’s top brass think that Efes’ managers can do better than they did.

Although Efes almost produces twice as much beer internationally than in its home market, Turkey contributes the most in terms of profits according to estimates. Efes has a leading market position in Turkey with an 89 percent share of the beer market and a 69 percent share of the carbonated soft drinks market via Anadolu Efes’s 50.3 percent interest in Coca-Cola Icecek.

Moreover, Efes has leading market positions in the growth beer markets of Kazakhstan, Moldova and Georgia.

Like SABMiller, Efes has never clung on to investments for long if they did not perform as planned. It sold its brewery in the Ukraine in 2005, disposed of its 49.99 percent stake in the Interbrew Efes Romania to InBev in 2006 and combined its operations in Serbia and Kazakhstan with Heineken’s in 2008.

The tie-up between SABMiller and Efes is to produce significant cost synergies of at least USD120 million per year, both parties said. That could mean that quite a few technical people at SABMiller will be looking for new jobs soon.

If you cannot beat them, join them

Source: BRAUWELT International research and company data