Analysis - InBev gives ground to win Anheuser’s hand
Given the consolidation trend in the global beer market, it was not likely to be that long before another mega-deal came along. InBev's move for US giant Anheuser-Busch was not unexpected though the concessions the Belgian brewer has had to make to seal the deal and the eventually hefty US$52bn price-tag may have surprised some. Olly Wehring reports.
InBev's acquisition of Anheuser-Busch, announced yesterday (14 July), will create what the two brewers claim will be the global leader in the beer industry and one of the world's top five consumer products companies.
The figures show clearly the sheer scale of the combined company. On a pro-forma basis for 2007, Anheuser-Busch InBev - as the new company will be known - would have generated global volumes of 460m hectolitres, revenues of US$36.4bn and EBITDA of $10.7bn. In its most recent fiscal year, the previous volume leader, SABMiller, saw its volumes rise to 239m hectolitres, with revenues reaching $21.41bn and EBITA coming in at $4.14bn.
The creation of this brewing behemoth has come at quite a price. At US$70 per share - a $5 increase on InBev's initial offer, made last month -the Belgium-based brewer will pay $52bn for A-B.
A combination of the two brewers had been speculated about for some time prior to InBev making its bid. The two companies already work together - in the form of distribution partnerships in Canada, South Korea and the US. Outside of these three markets, there is little overlap to worry about.
China is the best example of the good fit between the two groups. While A-B holds a 27% stake in Tsingtao Brewery Co. - China's largest brewer in sales terms - InBev acquired Fujian Sedrin in 2006, adding to its operations in eight provinces in the country. While Tsingtao is present primarily in the north-east of China, InBev has concentrated its efforts down in the south-east corner.
InBev had to make a series of concessions to A-B to win the US brewer's hand. Budweiser, A-B's flagship beer, will join Stella Artois and Beck's as the group's flagship brands, while A-B's home city of St. Louis in Missouri will become the headquarters for A-B InBev's North American region and "the global home" of Budweiser.
A-B's current CEO and president, August Busch IV, and one other - as yet unnamed - current or former A-B director will join the board. Finally, "given the limited geographical overlap between the two businesses and the efficiency of A-B's brewery footprint in the US", InBev has also had to promise that "all of Anheuser-Busch's US breweries will remain open".
So, by sweetening its offer and making a raft of promises, InBev finally won the approval of A-B's board for the acquisition. As well as these, the Belgian company, which has a strong reputation for cost-cutting, has said it will yield cost synergies of at least $1.5bn annually by 2011, phased in equally over three years. Considering the limited overlaps around the world, though, where are these savings going to come from?
"Given the highly complementary footprint of the two businesses," InBev said, "such synergies will largely be driven by sharing best practices, economies of scale and rationalisation of overlapping corporate functions."
The rumour mill, meanwhile, has already suggested that InBev may look to divest some of A-B's non-core operations, something it has often done after making acquisitions. In this instance, it seems likely that A-B's theme park and canning production operations will be put up for sale. The two units could generate up to $4.6bn, one analyst has suggested.
Another option is to reduce A-B's marketing spend. The US company likes to spend, and spend big. InBev, meanwhile, is not a fan of inflated marketing budgets, so this would seem an obvious stream to focus on. In a conference call with journalists yesterday, however, InBev's CEO, Carlos Brito, said that there were no plans to cut back on A-B's marketing activity.
The only geographical areas that could see integration-driven savings are in the UK and China, although the latter - universally recognised as a lucrative market for global brewers - seems an unlikely arena for potential savings. So it would be unwise to have A-B sell its Tsingtao stake. The same can be said of A-B's 50% - albeit non-controlling - stake in Mexico's Grupo Modelo. While such a move may offer savings, A-B's Modelo connection has meant the growth of imported beers in the US hasn't been all bad news for the nation's biggest indigenous brewer, with Modelo's Corona the number one imported brand.
So, in promising to leave the US largely alone InBev has virtually tied one hand behind its back before it begins to look for cost-cutting opportunities. But history has shown that to make it big - and stay big - in the developed markets, the global brewers have had to spend big, so Anheuser-Busch InBev will certainly be looking hard elsewhere for savings.
While the first - and biggest - hurdle has been cleared, then, Anheuser-Busch InBev has a fair few more in its path in the coming years.
Sectors: Beer & cider
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