Who’s to woo Bavaria?

In Latin America few men are richer than the patriarch Julio Mario Santo Domingo, 80, Colombia’s top businessman whose net worth the Forbes Magazine estimated to be USD1.4 billion in 2004. On the Forbes list of the world’s richest men he ranked 406. Not bad, ey? Santo Domingo may not only be one of the wealthiest persons alive, he is also one of the most sought after. Through his majority stake of Grupo Empresarial Bavaria, Latin America’s number two brewer, and holding company Grupo Empresarial Valores Bavaria he controls more than 100 companies in a variety of industries from beverages to newspapers, crude oil production and temporary staffing. It is hard to believe that in our dangerous times Santo Domingo is said to be a familiar figure in the international jet set. Says Forbes..

At his age, though, he seems to be spending more time at home on his luxurious private island of Baru, near the Colombian colonial city of Cartagena de las Indias.
That may also be one of the reasons why rumours have begun to thicken that he may be interested in selling his stake in Colombia’s Bavaria brewery, which dominates the beer markets in Colombia (60 percent of group EBITDA), Peru (26 percent of group EBITDA), Ecuador (9 percent of group EBITDA) and Panama after a three-year acquisition spree.
Although there have been the customary denials by Bavaria itself and many of the ‘usual suspects’ - it’s still early days. One of the obvious bidders would be AmBev (part of InBev), which already dominates the Latin American beer market with a 54 percent market share. But AmBev has already issued a statement saying that it was not in talks with Bavaria. People familiar with the situation were quoted as saying that while Bavaria was an interesting target, AmBev wanted to continue to grow organically especially since the price that has been quoted frequently seemed ridiculously high.
Bavaria is Latin America’s second largest brewer and the Latin American beer market continues to grow at about 5 percent per year says Canadean, London. According to the international business press, the deal could be worth USD6 billion to USD9 billion. Presumably the USD6 billion figure refers to acquiring a 70 percent stake in Bavaria. Analysts have worked out that a price of USD9 billion translates into a prospective 12.5 times EBITDA and could go higher if Heineken, SABMiller and Anheuser Busch all pushed the bidding up further.
A favourite with the press seems to be SABMiller, although for SABMiller the purchase would be more of a land grab than what has been termed ‘a synergistically driven acquisition opportunity.’ At present the overlap between SABMiller and Bavaria is limited. SABMiller’s Central American division consists of El Salvador and Honduras both of which have suffered from volumes falling (-3 percent) because of intense price competition from the local Pepsi bottler. Bavaria produces soft drinks in Ecuador, yet many observers remain sceptical whether SABMiller’s problems in these markets could be resolved through an increase in size alone.
Another bidder to have entered the fray seems to be Heineken. The Dutch brewer was quoted as ‘aggressively pursuing the deal’ but also admitted to be lacking the necessary funds to outbid SABMiller. Heineken has a commercial partnership with Mexican brewer FEMSA Cerveza and has operations in Chile, Argentina and Brazil. In its financial year 2003 the Americas represented 11 percent of beer volume for Heineken and 16 percent of turnover.
Anheuser Busch, on the other hand, is seen as an outsider. According to some industry observers the St Louis brewer has become a very unpredictable player in the Latin American beer market, having given AmBev a miss and having pulled out of Chile.
Let’s wait and see.