Breakingviews - Packaging sale can cure AB InBev’s hangover faster

Cans of Jupiler beer are seen on the bottling line at Anheuser-Busch InBev brewery in Leuven, Belgium November 25, 2019. Picture taken November 25, 2019.

LONDON (Reuters Breakingviews) - Anheuser-Busch InBev has a chance to put investors’ minds at ease a whole year sooner. Reuters reported on Wednesday that it is considering selling part of its U.S. packaging operation. Even a minority sale would help the world’s biggest brewer ditch debt faster.

There are risks to partially outsourcing such an essential part of flogging beer. Private equity firms, whom Deutsche Bank has already been sounding out, may have different opinions on strategy. And depending on an external firm for bottling and canning may expose AB InBev to higher costs. A source familiar with the matter said that this is what happened after competitor Heineken sold its Mexico packaging operation for $1.2 billion in 2014.

Retaining a significant stake can help protect the Belgian brewer. Its St Louis-based packaging unit is valued at $5 billion to $6 billion, according to a source cited by Reuters. A minority sale or a joint venture which raised around $750 million would already bring down net debt, according to analyst estimates compiled by Refinitiv, to around $51 billion. That’s below 2 times EBITDA in 2022 – a year earlier than Chief Executive Carlos Brito had planned to meet this target. And Brito would retain control over what it does.

Crossing the 2 times EBITDA might get the $133 billion brewer back into ratings agencies’ good graces. Last year Moody’s stripped it of its A rating because it wasn’t deleveraging fast enough, and plans to reduce debt through the listing of its Asia business were initially well received by investors: shares rose almost 4% the day the news broke. Selling a bigger chunk of the operations could even free up some cash to put towards acquiring businesses that would help revive AB InBev’s struggling top line. Inaction looks a worse option than taking the plunge.


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