Never trust the Marlboro men
After two years of having gotten written up as a takeover target, every fund manager and his dog seem to have finally woken up to the idea that buying SABMiller’s shares will land them a nice windfall profit in a few years’ time when the world’s number two brewer could be taken over.
Although BRAUWELT International has repeatedly argued that SABMiller’s numerous joint ventures (China, the U.S., Africa, Russia) may hamper a takeover, especially in China, where it is difficult to gauge the position of the Chinese government, over the longer term, however, SABMiller is potentially the only firm that could be taken over by AB-InBev.
To date, the brewer has done everything it can to remain independent and make a takeover as difficult as possible. The Foster’s deal was proof of the company’s wish to remain independent.
But SABMiller’s executives know only too well that they have a wobbler on their board: Altria, the U.S. cigarette company, which owns the Marlboro brand.
The position of Altria as a 27 percent shareholder in SABMiller, argues a recent report, could potentially be the deciding factor that determines further consolidation in the brewing industry.
By 2013/2014 Altria will have cut all the cost it can possibly cut out of its business and by that date the company will have started to take steps to counter the 3 percent to 4 percent annual decline in its own cigarette business. Whether Altria will have found a suitable acquisition target may well determine SABMiller’s availability by that date – which may well coincide with AB-InBev having built a sufficiently large war-chest to have a go at SABMiller.
Bankers have always argued that it’s SABMiller’s control characteristics – the fact that its three major shareholders Altria (with a 27 percent stake), the Santo Domingo family (14 percent), and Polish billionaire Jan Kulczyk (9 percent) have managed their stakes as a financial investment, with limited direct involvement in managing the company – which render SABMiller more vulnerable to a takeover than, let’s say, Heineken or Carlsberg.
While we cannot predict how the Santo Domingo family or Mr Kulczyk will decide once an offer is placed right in front of them, it’s easy to see what Altria will do.
Altria is by far the biggest U.S. cigarette maker in both market value (USD 61 billion) and revenue (roughly USD 16 billion) a year. Its business strategy, to the outsider, looks quite simple: cut costs, buy back shares, pay fat dividends (a generous 80 percent of earnings) and sell off stuff to fund it all.
Only some mean-minded critics would actually say that Altria has been cashing out this past decade, but there’s some truth to this. In 2001 it sold Miller Brewing to SAB in exchange for a stake in SABMiller, now valued at USD 15 billion; in 2007 it divested its food unit Kraft and in 2008 its international cigarette division Philip Morris International.
These sales helped offset declines in its domestic business and allowed for nice dividend payments. Alas, most of the family silver is gone. Except for its stake in SABMiller and in a few vineyards, Altria has very little left that it can turn into cash.
That’s why Altria might be more than happy to trade its stake in SABMiller for a fat pile of money which it could use – a cheeky analyst has suggested – to buy a utilities company. After all, that’s a business model Altria knows only too well: use a captive client base to constantly raise prices and at the end of the day you’ll laugh all the way to the bank.
Of course, it’s early days still.
