World domination
The SABMiller-Foster’s deal is not even completed and already there is talk by "bankers" about the next tie-up looming between AB-InBev and SABMiller. We wonder: who are these clowns (the "bankers") and when did the circus come to town?
According to a report by Reuters on 26 September, “bankers” are hopeful of an USD 80 billion plus deal to end all deals between the industry’s two giants, Anheuser-Busch InBev and SABMiller.
Yeah, these unnamed bankers would be hopeful. If such a deal materialised, they would gain the most: at least USD 6 billion in bankers’ fees alone.
The anonymous bankers in the Reuters article say the world’s number one brewer AB-InBev will not be deterred from making a move for SABMiller even after the number two brewer swallows up Australia’s Foster’s by the end of 2011 in an AUD 12.3 billion deal.
According to one banker, a deal between the two heavyweights would cause "only major (!) anti-trust headaches in the U.S. and China" which would force sell-offs in those markets.
"Only major headaches"? Shome mishtake shurely. It’s either "only minor headaches" or more correctly "major headaches". And major headaches they will be.
Because in the U.S. a tie-up between the two would most likely require the disposal of SABMiller’s 58 percent stake in the MillerCoors joint venture to take the anti-trust hurdle. AB-InBev alone has a 50 percent market share. If SABMiller were to sell out to, let’s say, Molson Coors (and there is a big question mark hanging over Molson Coors’ keenness on such a deal), AB-InBev-SABMiller would squander USD 5 billion in sales alone.
Over in China, the government could take an equally critical attitude as SABMiller’s joint venture with China Resources enjoys market leadership with a 20 percent market share. Besides, there is already another brewer waiting in the wings (Kirin) who would only be too willing to take over SABMiller’s part.
Assuming that AB-InBev could lose out in two important markets through such a tie-up, what would they gain? SABMiller’s market leadership in Colombia and Peru. Fine. What else? SABMiller’s businesses in central and eastern Europe. But have these deal-hungry “bankers” forgotten that AB-InBev was rather glad to spin off its own unit in these markets to private equity company CVC?
To press further, what would AB-InBev reap in Africa? They would get SABMiller’s stronghold in South Africa plus a few hotly contested markets in East Africa. However, in the rest of Africa they would be forced to negotiate with Pierre Castel, who calls the shots in his and SABMiller’s joint venture.
And finally, soft drinks would be a major problem. AB-InBev is the biggest bottler outside the United States for PepsiCo, while SABMiller is a big bottler for Coca-Cola. The combined group would have to (or be forced to) decide between the two soft drink giants.
The bankers nevertheless argue that a potential tie up would lead to USD 1 billion in annual cost savings, after at least USD 13 billion of disposals to get around anti-trust issues in the U.S. and China.
We think that SABMiller’s global business has become too complex and too reliant on joint ventures (with their own inherent vagaries) to warrant a takeover attempt by AB-InBev.
But as we never tire of saying: we have seen stranger things happening.
There is no doubt, though, that AB-InBev could afford a big deal in a few years’ time given that AB-InBev has done very well in cutting its debt load in recent years. There is equally no doubt that SABMiller is more vulnerable to a takeover than other big brewers such as Heineken, Molson Coors and Carlsberg, as it has a relatively open shareholder base.
Ultimately, AB-InBev are in no rush to do any big-ticket transactions. They can just lean back and become the Altria of the brewing industry: improve margins year by year, pay their shareholders fat dividends and watch their market capitalisation grow.
Comparing a brewer with a cigarette company like Altria may not be flattering or politically correct. Yet, at the end of the day, being a stock market-listed company is all about producing shareholder value. And Altria has shown how this can be done without doing any deals.
