AB-InBev’s new business model: temporary off-loading
The Oriental Brewery deal, which was announced on 7 May 2009, gives AB-InBev the right to buy back Oriental Brewery within five years at “predetermined financial terms,” it was reported. The exact financial terms were not disclosed.
However, given that AB-InBev’s bond issue in January 2009 bore an annual interest rate of 7.20 percent, it is not very likely that AB-InBev could renege on this rate with KKR.
The buy-back option has its advantages. It gives both sides predictability and an incentive to keep the business strong and growing.
One day after the sale of Oriental Brewery had been clinched, AB-InBev reported that it was selling its remaining minority stake of 7 percent in Tsingtao to the Chinese private investor Chen Fashu for USD 235 million.
Following the takeover of Anheuser-Busch, the Chinese competition authorities had forced InBev to sell 19.9 percent of Anheuser-Busch’s stake in Tsingtao Brewery. In January 2009, the stake went to Asahi Breweries for USD 667 million.
Without the Tsingtao stake, AB-InBev still enjoys a 20 percent share of the Chinese beer market. But what’s that worth?
Contrary to some analysts, we do not think that AB-InBev will actively pursue any long-term interests in China. Beer consumption in China may be growing, but profits are low. And without a national brand like Tsingtao in its portfolio, any significant profit growth will remain unlikely.
In effect, with the sale of its remaining stake in Tsingtao and the off-loading of Oriental Brewery, AB-InBev has put Asia very firmly on a back burner.
Now, if we will wait for some time, AB-InBev might do the same with Russia. It does not take a genius to predict that AB-InBev will offload its Russian business to a private equity company should the opportunity arise.
Because, at the end of the day, AB-InBev, or rather its all-powerful investors are only interested in keeping the North American and the South American businesses: that is the former Anheuser-Busch and Latin America’s AmBev.
According to AB-InBev’s 2008 annual report, the Americas accounted for 56.8 percent of the group’s volume sales, but for 72.6 percent of the group’s EBITDA.
When it comes to profits, the whole of Asia Pacific (including China) contributed only 4.4 percent to AB-InBev’s 2008 profits, while the whole of western and eastern Europe contributed 19.2 percent.
As the figures show: you would be stupid not to focus your efforts on the Americas if there were an elegant way of getting rid of the rest.
One question mark remains: the fate of Grupo Modelo. Will the Mexican owners be able to buy back a 50 percent stake in Grupo Modelo currently owned by AB-InBev? Or will they come to some sort of gentlemen’s arrangement with AB-InBev?
Apart from that uncertainty, AB-InBev’s recent signposts indicate that a relocation of its headquarters from Leuven to New York is firmly on the cards.
AB-InBev has commenced reporting in U.S. dollars and it is setting up a special office in New York.
At variance to a recent AB-InBev announcement that Leuven is to remain the group’s headquarters, we believe that a move to New York will happen as soon as the tax benefits that AB-InBev enjoys in Belgium expire and there is no one left who might worry over a loss of face.
Perhaps only history will tell, but we would be curious to find out if all of this had already been on the Brazilian investors’ minds when they formed their combination with Interbrew in 2004.
