* Asia main area with assets left to buy, but expensive
* AB InBev, SABMiller merger would combine Latam, Africa
* SABMiller price tag would likely be more than $100 bln
By Philip Blenkinsop and Martinne Geller
BRUSSELS/LONDON, Oct 28 With half the world's
beer produced by four big firms and few markets left for them to
tap, the time may be right for a $100 billion merger between the
two largest, Anheuser-Busch InBev and SABMiller
This mega-deal is tipped by analysts as the most likely
tie-up because of the other two, Heineken is family
controlled and Carlsberg is protected by a trust.
Talk that AB InBev might buy SABMiller is not new, but it
paused in June 2012 when the former announced a $20.1 billion
deal to take over Mexican brewery Grupo Modelo.
Now, with AB InBev planning to return to a comfortable
pre-deal debt-to-EBITDA ratio of below two next year, industry
experts are betting on a combination of its Budweiser and Stella
Artois brands with SABMiller's Peroni and Grolsch. Some expect a
deal within a year.
"It's more a question of when, not if," said a banker who
has worked on drinks deals. Others, also speaking on condition
of anonymity, cited AB InBev's record as a serial acquirer and
the need for a target to match or surpass its $52 billion
purchase of Anheuser Busch in 2008.
AB InBev has grown from a small Belgian brewer, with roots
dating back to 1366, into a powerhouse with 17 billion-dollar
brands and a Brazilian-led management based in New York.
Under Chief Executive Carlos Brito, it is renowned for
buying assets, aggressively cutting costs and swiftly moving on.
When it comes to the next target, many independent brewers
are in Asia. But a large number are family or state-controlled,
such as Thailand's ThaiBev or Vietnam's Sabeco, and
unlikely to be had on the cheap. Heineken paid a mammoth 35
times trailing earnings for control of Asia Pacific Breweries
Ltd last year.
While SABMiller won't be cheap either, analysts say a tie-up
would be straightforward with antitrust issues relatively easy
to fix and immediate benefits of scale.
"If you do a deal, say, with ThaiBev, it's not going to move
the needle. If you do it with SAB it would give them another leg
up," said Andrew Holland, beverage analyst at Societe Generale.
AB InBev and SABMiller declined to comment.
AB InBev is market leader in North America, Mexico and
Brazil. SABMiller would give it smaller Latin American markets
such as Colombia and Peru, as well as Africa, where SAB began
selling beer in 1895 to Johannesburg prospectors used to
drinking raw potato spirit mixed with tobacco juice and pepper.
The market overlap likely to upset regulators is in the
United States and China, analysts say.
AB InBev has almost half of the U.S. market and would not be
allowed to add SABMiller's quarter share, held through the
MillerCoors joint venture with Molson Coors. Selling the
Miller stake is the obvious fix, although Molson would be the
only realistic buyer and so not forced to pay top dollar.
In China, regulators may be unhappy with a combination of
SAB's joint venture with the brewer of market leader Snow and AB
InBev's various brewing partnerships.
Soft drinks may also cause a hiccup, as AB InBev is the
largest Pepsi bottler in Latin America and SABMiller is
a big Coca-Cola bottler. A combined entity would have to
Still, the key determinant for any deal is price. A
SABMiller takeover, estimated at around $100 billion, would
likely be the fifth-largest corporate acquisition ever.
Due to its presence in rapidly growing markets, SABMiller
has a market value of $84.5 billion. Even off its May peaks, it
is still 41 percent more expensive than at the start of 2012,
when AB InBev was first reported to be interested.
The London-based brewer trades at a multiple of 20.2 times
forecast earnings for the next 12 months, according to Reuters
data, slightly higher than ABI's 19.9 and any other European
beer, spirits or tobacco group.
AB InBev may want to move fast before SABMiller gets more
expensive. Another consideration is the U.S. Federal Reserve's
likely decision soon to scale back its bond-buying program -
expected to lead to higher interest rates that would make the
deal more expensive to finance.
SABMiller's two top shareholders - cigarette maker Altria
Group and the Santo Domingo family of Colombia, which own
27 percent and 14 percent, respectively - "may think this is as
good as it gets," said another banker.
Bankers also speculate that those owners may be willing to
accept shares in a new, larger brewer and enable AB InBev to
shoulder less debt. Altria did so in 2002 when SAB bought
Miller, while the Santo Domingo family traded their Latin
American Bavaria business for SABMiller stock.
Altria says it regularly evaluates the stake.
"Currently, we believe maintaining the investment is in the
best interest of our shareholders," said an Altria spokesman.
A representative of the Santo Domingos could not be
Alternatively, SABMiller could try to make itself too big to
buy by taking over its African partner Castel Group or Turkey's
Anadolu Efes, both of which it has stakes in.
SABMiller said at the start of 2012, just when AB InBev
appeared on the prowl, that it was interested in buying Castel.
It has first refusal should Castel decide to sell, although
there is no evidence the Paris-based group wants out.
Other industry executives think it is shortsighted to limit
AB InBev's and its rivals' ambitions to beer alone.
Speculation over whether AB InBev would buy PepsiCo's drink
business, or at least part of it, has grown recently as activist
investor Nelson Peltz pushes for PepsiCo to buy Cadbury
chocolate maker Mondelez International, making it more
likely that the drink business could be sold.
"ABI and SAB do have strategic alternatives to making
further large acquisitions in beer," said S&P Capital IQ analyst