Market rumour: AB-InBev desperately seeks private equity
It has been widely reported – all based on rumour – that Mr Kallmeyer, when he was still CEO of Germany’s number one brewery group Radeberger, offered too little for InBev Germany. Alas, people familiar with the matter say that it was the Oetker family itself that withdrew Mr Kallmeyer’s mandate at the very last moment.
Although he had been given the go-ahead by the Oetker family to buy up market share in Germany several years ago, the self-same people withdrew their support just when the opportunity for a once-in-a-lifetime-acquisition arose at the end of last year.
Apparently, the family, which has stakes in the food industry and in shipping and whose business conglomerate turns over EUR 7.7 billion annually, got frightened when it came to putting more eggs into one basket. The German beer market is Europe’s largest, but consumption is in decline and profits are under severe pressure.
According to people close to the action, Mr Kallmeyer was prepared to dish out eight times EBIT for AB-InBev’s German assets which include the beer brands Beck’s, Franziskaner, Löwenbräu, Hasseröder und Diebels. If we assume an EBIT of EUR 180 million for AB-InBev’s German assets (in 2007 InBev earned EUR 558 million in Western Europe – and we calculate Germany to represent a third of that sum) he was ready to pay far in excess of the EUR 1.0 billion widely reported as his final offer.
He was even willing to relinquish the international rights (and hence all the future growth) to the Beck’s and Franziskaner brands which AB-InBev wanted to keep.
Mr Kallmeyer knew very well that the only way forward in Germany is to grow market share to 25 percent and thus way above the 15 percent Radeberger currently holds. Textbook economics show that there is a direct correlation between market share and profitability.
Unfortunately for him, the selfsame family that wanted him to accomplish this feat through acquisitions only a few years back, in 2008 changed their minds.
And withdrew their mandate.
Again, if it were really true that the Oetker family withdrew Ulrich Kallmeyer’s mandate to buy InBev’s German assets at the last minute (and not some spin disseminated by certain parties with an interest in the affair), then Mr Kallmeyer has been wronged. Our apologies.
Still, this leaves AB-InBev in a lurch. Although AB-InBev could have sold its brands and breweries one by one, this is not AB-InBev’s preferred method of disposal. Too cumbersome. Also the total assets price achieved this way would have been far lower.
Now AB-InBev rests its hope on a private equity buyer to repeat the stint accomplished in South Korea where AB-InBev sold its Oriental Brewery to private equity firm Kohlberg Kravis Roberts & Co for USD 1.8 billion in May.
Unfortunately, private equity firms by rule of thumb only pay six times EBIT – if that. Moreover, they can afford to be choosy. There are a lot of companies on the market looking for a buyer.
This should make some people in Leuven feel a bit hot under the collar.
