LONDON (Reuters) - In a global brewing industry marked by huge consolidation over the last decade, bankers are hopeful of an $80 billion plus deal to end all deals between the industry’s two giants, Anheuser-Busch InBev (ABI.BR) and SABMiller SAB.L.
If AB InBev buys SABMiller it could be the biggest cash takeover in history and would create a group brewing a third of the world’s beer. Analysts and bankers suggest 2013 as a likely time frame for a takeover that is seen as the final play in deal making in big world brewing.
They say the world’s No 1 brewer AB InBev will not be deterred from making a move for SABMiller even after the No 2 brewer swallows up Australia’s Foster’s by the end of 2011 in a $10.2 billion deal.
A Foster’s deal may delay an AB InBev-SABMiller linkup by six to twelve months pushing a possible deal to 2013, after AB InBev’s Chief Executive Carlos Brito said its debt would fall during 2012 to levels which made further acquisitions possible.
A deal would close out a decade of rapid consolidation led largely by AB InBev and SABMiller and leave few remaining easy targets, with the remaining big global brewers like Heineken (HEIN.AS) and Carlsberg (CARLb.CO), as well as AB InBev, controlled by families, individuals or charity shareholders.
“The Foster’s deal may delay an AB InBev-SABMiller tie up, but it doesn’t change the strategic view that eventually it will make sense for these two to link up,” said one banker who has worked for one of the big brewers.
AB InBev’s Brito is said to like the high-margin Australian beer market and although a Foster’s deal will add to the cost of an eventual SABMiller takeover, it would give a combined group an even wider spread of the world’s beer market.
A deal would link AB InBev’s Budweiser, Stella Artois and Brahma beer brands with SABMiller’s Peroni, Miller Lite and Grolsch, and cause only major anti-trust headaches in the U.S. and China which would force sell-offs in those markets.
AB InBev swallowed Budweiser-brewer Anheuser-Busch for $52 billion in 2008 in the world’s biggest ever cash takeover, and due to big cost savings, sell-offs and hefty cash generation has cut its debt to be able to start thinking about its next move.
SABMiller is attractive to AB InBev due to the London-listed brewer’s large operations in the high-growth emerging markets of Africa, South America and eastern Europe which will help AB InBev reduce its reliance on the tough U.S. beer market
“Over 90 percent of AB InBev’s earnings come from America, so a move for SABMiller would create a real powerhouse with big operations on six continents,” said another banker.
“AB InBev has been built by a string of good M&A deals over the last decade so the market is likely to support one final deal based on its impressive record especially with the Anheuser-Busch deal,” the banker added.
Analysts say the Foster’s deal will not change the rationale behind a bigger tie-up after SABMiller last week agreed a $10.2 billion cash deal to take over the Australian brewer which it hopes to complete by the end of 2011.
This takeover will gives SABMiller a near half share in the Australian beer market where AB InBev has virtually no presence, so will create no new competition hurdles, and the only downside is it will make any eventual deal more expensive.
The Foster’s deal is set to dilute SABMiller’s exposure to emerging markets to just above 70 percent of its earnings from over 80 percent. AB InBev’s big reliance of the U.S. beer market sees it make just 45 percent of its earnings from emerging markets.
A potential tie up would entail at least $13 billion of disposals to get around anti-trust issues in the U.S. and China, but annual cost savings could potentially top $1 billion.
Disposals would likely include the sale of SABMiller’s 58 percent stake in U.S. brewer MillerCoors, probably to 42 percent co-owner Molson Coors (TAP.N), for around $9 billion as MillerCoor’s near-30 percent U.S. market share added to AB InBev’s 50 percent would be too much for U.S. authorities.
A further move would likely be the sale of SABMiller’s 49 percent share in leading Chinese brewer CR Snow, to appease Chinese authorities as AB InBev already has a significant Chinese presence.
AB InBev’s Brito has said its cash and balance sheet usage is an issue to be addressed only when group’s debt to core EBITDA profit fall below 2 times, which is due “during 2012” according to the company.
The Belgium-based brewer’s record of cutting debt after deals is impressive as its net debt to EBITDA ratio fell to 2.9 times from 3.7 times during 2010, and many analysts believe it will fall below the company’s 2 times target in 2012.
AB InBev’s ability to do and then make deals pay is illustrated by its shares outperforming DJ Food and Beverage index .SX3P by around 45 percent since it sealed the Anheuser-Busch deal in late 2008, analysts said.
SABMiller is more vulnerable than other big brewers such as Heineken and Carlsberg as it has a relatively open shareholder base. While other possible targets in the beer world such a MolsonCoors or Africa’s Castel are family controlled.
SABMiller’s two big shareholders include U.S. cigarette maker Altria (MO.N) which has a 27.1 percent stake as a legacy of SABMiller’s 2002 deal to buy Miller, and the Colombian Santo Domingo family with a 14.2 percent stake which dates back to SABMiller’s deal to acquire South American brewer Bavaria in 2005.
Reporting by David Jones; Editing by Chris Wickham