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« Holy Guacamole! The giants are dancing again. | Main | Can you be fired for doing a legal act outside of the workplace? »

Insights into SABMiller, Heineken and ABI

Rather than attempting to simply restate what others have written, I offer below a pretty good summary of the dance of the giants… and even some half-giants… thank you Hagrid ;-) and thank you Tara for a pretty good summary... followed by another one from The Economist.

You can find the full article here or simply continue reading.  This is from the Independent Online from South Africa.  This really is an international deal ;-) 

Also please note that nowhere in the story does it mention the impact of this deal on the US market.  Why?  ‘Cause that ain’t what’s driving this thing… as noted in the last post, the US market is simply something that will have to be managed, it in no significant way will determine whether these deals happen or not.

SABMiller’s choice: lift bid for Heineken or marry AB InBev

September 17 2014 at 08:00am

Tara Lachapelle

IF SABMiller wants to avoid getting bought, its best bet may be to make Heineken an offer it cannot refuse. SABMiller is looking to make a large enough acquisition that will shield it from being acquired by growth-hungry Anheuser-Busch InBev (AB InBev) , the largest brewer.

London-based SABMiller had bet that $45 billion (R495.9bn) for Heineken would be the answer, only to have its takeover offer turned down by the company’s founding family earlier this week.

Even though shares of both Carlsberg and Diageo rose on Monday on speculation they could be alternative targets for SABMiller, Heineken is still the most appealing option, according to Morningstar’s Philip Gorham.

Persuading the Dutch brewer to sell might require a bid within the upper e70 (R999) a share range – about a 30 percent premium – as well as making concessions such as giving the family board seats and adding Heineken to the combined company’s name, Gorham said.

“I suspect that as vocal as Heineken has been about not wanting to sell, everything has its price,” Gorham said. “SABMiller could come back to Heineken. It’s the number one choice. If they don’t get that, anything else is suboptimal.”

Richard Farnsworth, a spokesman for SABMiller, declined to comment on whether it would make another attempt to buy Heineken or other companies.

Vulnerable giant

Heineken confirmed in a statement that it had rejected SABMiller, saying the proposal was “non-actionable” and that the Heineken family intended to keep the company independent. The founding family controls the brewer via another publicly traded vehicle, Heineken Holding, which owns 50 percent of the 150-year-old business.

The Heineken statement “was very clear”, company spokesman John Clarke wrote on Monday.

The rejection leaves SABMiller more vulnerable to being acquired by AB InBev, the maker of Budweiser and Stella Artois. The ball is in the Belgian company’s court to move forward with the long-speculated merger – unless SABMiller can persuade Heineken’s family to sell.

“It’s just very difficult in those sorts of family circumstances where there’s more than money involved, there’s emotions,” Wyn Ellis, an analyst for Numis Securities, said. “From what Heineken said, it looks to me that the definitive answer is no.”

SABMiller had “sensible people, so I guess they would not have made the approach unless they felt there was a chance of certain success”, Ellis said.

While the price that SABMiller offered has not been made public, Heineken shares climbed 1.3 percent to e60.18 on Monday, valuing the company at almost 11 times this year’s estimated earnings before interest, tax, depreciation and amortisation (Ebitda).

SABMiller, valued at $98bn after gaining nearly 10 percent in London on Monday on talk of an AB InBev approach, could justify paying an Ebitda multiple in the “low teens” given the opportunity it would have to expand the Heineken brand in Asia, one of the faster-growing beer markets, Gorham said.

“It leaves some room to go higher” from Monday’s closing level, he said. “I wouldn’t rule out a high 70s takeout price.”

If SABMiller were to pay e78 a share for Heineken entirely in cash, it would result in a 16 percent increase to next year’s earnings, data show.

Lesser alternatives

SABMiller may have other options should Heineken continue to resist, though they also appear flawed. One was to pursue a deal with Carlsberg, the Danish brewer that was valued at $15bn on Monday after rising 2.7 percent, except it was controlled by a foundation that also might not be willing to sell, Ellis said.

Carlsberg’s brands were less appealing than Heineken’s, and its biggest developing market was eastern Europe, which was not growing as quickly as other developing regions, Gorham said.

While Heineken and AB InBev’s brands ranked among last year’s top 10 beers by volume, none of Carlsberg’s beers made the list, according to Bloomberg Intelligence.

Another idea was to buy Groupe Castel’s African beer operations, in which SABMiller already has a 20 percent stake, although that might not provide enough scale, he said.

There is also Diageo, which surged 2.2 percent on Monday, its biggest gain since April. The $76bn company focuses on liquors such as Johnnie Walker whisky and Smirnoff vodka and is unlikely to be interested in merging with SABMiller or selling its Guinness beer brand, according to Ian Shackleton and Edward Mundy from Nomura International.

“That SABMiller’s inorganic options have been so publicly lessened puts AB InBev in an even stronger position, should it choose to make a move on SABMiller,” Eddy Hargreaves, an analyst at Canaccord Genuity Group, wrote in a note on Monday. “SABMiller shareholders may be even more likely now to welcome a bid.”

Perhaps management would be, too, said Bryan Keane, a money manager at Alpine Woods Capital Investors, which owns AB InBev stock.

Being rebuffed by Heineken “may make SABMiller change their position and be more open to discussing a deal with AB InBev”, Keane said from New York. “They’re very complementary businesses.” – Bloomberg

 

The Economist also had a good summary...  which you can find here or you can just keep reading.

Foamy war

SABMiller may be swallowed up by its main rival, AB InBev

Sep 20th 2014 | From the print edition of The Economist

THE world’s biggest brewer, AB InBev (ABI), is also the most frugal. There are no company cars for senior executives. Carlos Brito, the boss, flies economy class. That is one reason why, with 18% of global beer sales, ABI has a third of the profits.

This will matter in the wary manoeuvres now taking place among the giants of global brewing. On September 14th Heineken, the number three by volume (see chart), said it had rejected a takeover proposal from SABMiller, the number two. SAB seems to have been trying to defend itself against a possible takeover by ABI, which was said to be talking to bankers about raising £75 billion ($121 billion) to buy its rival. That was little more than a rumour, but industry-watchers suspect something big is indeed brewing, in brewing. And the chances are that ever-thirsty ABI, maker of Budweiser and Stella Artois, will swallow SAB.

The beer behemoth has few other ways to grow. In rich countries, consumption of beer has stopped rising. In America, ABI’s Anheuser-Busch division is suffering growing competition from small makers of “craft beer”. The number of American breweries has jumped from fewer than 100 in 1983 to more than 3,000 today. ABI has its roots in Brazil, but there drinkers are suffering from a sluggish economy and post-World Cup blues. This leaves ABI with two options, says Andrew Holland, an analyst at Société Générale: give its cash back to shareholders or buy something.

SAB is a tempting target. Though based in London, its origins are in South Africa; it has breweries and bottling plants in 15 African countries, where people still mainly guzzle moonshine. It has stakes in 21 others through an alliance with Castel, a French drinks company. Nearly 70% of SAB’s sales are in emerging markets, many of which are still developing a taste for beer. Last year its sales by volume expanded by 3% (not counting growth from acquisitions). ABI’s, in contrast, dropped 2%.

If ABI gets hold of SAB it will no doubt try to repeat tricks that have worked well since AmBev of Brazil merged with Interbrew of Belgium a decade ago and then pushed out its American boss: squeeze costs and use the new acquisition as a platform to spread its brands. That was the formula after the merged group bought Anheuser-Busch, the maker of Budweiser, in 2008. Grupo Modelo, a Mexican brewer which makes Corona and has been part of ABI since last year, is now undergoing the same rigours.

SAB would be a more difficult undertaking. For one thing, notes Mr Holland, it is more tightly managed than “fat and lazy” Anheuser-Busch was, so there is less scope for cutting costs. SAB is bigger and more complex than anything else ABI has taken on. A knack for cost-cutting may not serve it as well in fast-growing markets. Another problem is that in some countries the two giants’ combined businesses would be too big. In America Anheuser-Busch and SAB’s joint venture with Molson Coors, another rival, would together have three-quarters of the beer market. In China the two would have more than a third. These are not insurmountable problems. In America, for example, the stake in the joint venture could be sold to Molson Coors.

Despite the obstacles, a merger of the leading two beer companies looks the likeliest of the potential huge deals. Heineken, which is controlled by the Heineken family even though it owns just 23% of the company’s equity, has now given notice that it does not want to be bought (though that could change if SAB boosted its offer). Carlsberg, the smallest of the big four, is controlled by a foundation. So the parsimonious Mr Brito may well get his hands on SAB if he wants it enough. Teaching Africans to like Budweiser, however, may prove somewhat harder.

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