July 15, 2019 / 5:06 AM / 7 months ago

Breakingviews - Morgan Stanley’s Asian crown gets Bud-shaped dent

Carlos Brito, Chief Executive of Anheuser-Busch InBev, holds a non-alcoholic Jupiler beer bottle during a news conference in Leuven, Belgium March 1, 2018. REUTERS/Francois Lenoir

HONG KONG (Reuters Breakingviews) - Morgan Stanley’s Asian crown just got a Budweiser-shaped dent. Along with JPMorgan, the U.S. bank was joint sponsor of AB InBev’s now-scrapped listing of its Asia unit, which was intended to raise $9.8 billion. The setback takes the shine off its local league-table pre-eminence.

What was due to be the year’s biggest IPO fell flat on Friday after AB InBev pulled the deal, citing “market conditions”. There was a more basic problem: price. Investors didn’t reckon Budweiser Brewing Company APAC, which is exposed to slower growth markets like Australia as well as fast-growing China, should trade at a valuation multiple above peers, Reuters reported. Even at the very bottom of the pricing range, the unit would still have been valued in line with those peers at 17 times expected 2019 EBITDA, according to Breakingviews calculations.

That left bankers selling a bumper offer in jittery markets at a non-bargain price. Weeks of pre-marketing should have provided executives and bankers with a gauge of where demand would fall. That suggests they either misread the market or decided not to listen. Pressing ahead without cornerstone investors made things tougher.

It’s possible that AB InBev wasn’t prepared to get out of bed for less than $10 billion. Boss Carlos Brito has said publicly he would only float the unit if the terms were good for the company. In that case, Morgan Stanley and JPMorgan may have had little choice but to go along with a price range that was out of whack with what the market was willing to pay. Still, it’s an adviser’s job to manage expectations, and to back out of a deal if the price a company wants is unachievable. This is where client loyalty becomes tricky: backing out makes you seem less loyal, but failure reflects badly on the bank.

AB InBev has in some way at least achieved one of the things it was looking for in the first place: a higher valuation. Its stock is up 30% since news of the deal emerged in January. But the banks, which stood to rake in over $150 million in fees, walk away empty handed.

For Morgan Stanley, that’s particularly important. The bank is the top non-Chinese adviser on equity capital market deals in Asia Pacific by revenue so far this year, according to data provider Dealogic. The hit to its wallet and credibility is that bit more noticeable. 


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