Will AB-InBev swallow SABMiller?
What have we been saying for months? That SABMiller is a likely takeover target. Coincidentally, the beverage economist Germain Hansmaennel and I discussed this possibility in our presentation at Rüdiger Ruoss’ Bündner Runde, a German beverage industry summit in Davos (report out next week in this newsletter), while two days later, on 2 February 2011, over in New York, analysts at Credit Suisse threw the idea into the open that AB-InBev could merge with SABMiller.
According to Credit Suisse, the reason for the biggest deal yet in the brewing industry is simple: because it can be done. SABMiller does not have any strong or dedicated shareholders. Add to that the fact that AB-InBev has lowered its debt load ahead of time to very manageable levels and a takeover or merger becomes a viable option.
Alas, the price tag on SABMiller will be high: with a market capitalisation of USD 54 billion SABMiller could be sold for up to USD 71 billion, says Credit Suisse in a research note.
From the point of view of the analysts, taking over SABMiller makes perfect sense. It would give AB-InBev greater exposure to emerging markets such as Latin America and Africa and would counter the continuing ills of the U.S. domestic beer market.
While Mr Hansmaennel and I maintain that SABMiller is vulnerable, we think that a tie-up between AB-InBev and SABMiller carries too many risks for AB-InBev to even consider it.
The bankers who run AB-InBev know very well that anti-trust watchdogs in the U.S. would put their foot down and force AB-InBev to dispose of Miller Brewing (or parts of it), at a loss of 62 million hl of volume. In Africa, SABMiller is only strong in South Africa. SABMiller’s joint venture partner in the rest of Africa, France’s Groupe Castel, might oppose this deal and exit the joint venture. Another loss to AB-InBev.
In China, SABMiller’s joint venture partner China Resources Enterprise (CRE) might consider doing the same. After all, CRE already controls 20 percent of the Chinese beer market. Any combination with AB-InBev, which would take their combined market share to over 30 percent, could propel the Communist government into action to block it. In the past, the Chinese authorities have never looked favourably on foreign companies getting too large a stake in their market.
SABMiller’s share of the European market is small – it ranks fourth behind Heineken, Carlsberg and AB-InBev – and upon a closer look, AB-InBev might merely think SABMiller’s investments in Poland and Russia worth its while.
Ultimately, the only interesting bits that AB-InBev might eye up in SABMiller are its Latin American territories – Colombia and Peru.
In sum, we do not think it likely that AB-InBev will splash out such huge amounts of money to gain so little.
Which leaves us with the big question: does SABMiller want to be taken over? Not necessarily but SABMiller has no say in the matter as it will be decided by its major shareholder, the cigarette company Altria, which controls 27 percent of the brewer.
In the meantime, all SABMiller could do to fend off a takeover is to make itself even more expensive by taking over Foster’s beer unit CUB.
Self-protection through an acquisition - that strategy has already worked well for SABMiller in the past. When in 2001 SAB was threatened by an unwanted offer by Interbrew, then headed by CEO Hugo Powell, SAB rushed to clinch a deal with Miller Brewing in the United States. If anything, this deal has bought SABMiller time.
Ten years on, many pundits wonder: will history repeat itself and will Foster’s be SABMiller’s means to this end?
