Having announced last month that it was seeking a foreign partner, the Colombian brewer Bavaria has attracted serious interest from the world's four largest brewing groups. Ben Cooper reviews the runners and riders in the race for Latin America's largest remaining independent brewer.

Interest from multinationals in the Latin American brewing sector shows no sign of abating. Having seen the major tie-up between Interbrew and Ambev last year, attention is now fixed on Colombia's largest brewer, Bavaria. It appears that the world's four largest brewers, Inbev, Anheuser-Busch, SABMiller and Heineken all have an eye on Bavaria, but SAB Miller is thought to be in the box-seat.

Bavaria, which includes the brands Aguila, Cristal and Pilsener in its portfolio, announced last month that it was seeking a foreign partner. However, according to most analysts the auction now well underway could take several months to play out.

So far, all four brewers are thought to have held preliminary discussions with Bavaria, which is 70%-owned by the Santo Domingo family who have appointed an investment bank to oversee the sell-off. However, the Santo Domingo family is known to favour a partial sale to an international partner rather than a complete takeover, and this could be a stumbling block.

Although some analysts have questioned if the family will ultimately go through with a deal, particularly if they cannot retain some participation, the market seems to be pretty convinced that a deal is in the offing. The company's shares have risen by almost 87% since it was first speculated that it might be seeking a partner. The Colombian securities commission has asked the company to clarify the situation.

Bavaria would certainly be a significant prize for one of the big four as they vie for supremacy across global beer markets. Along with China, Latin America is seen as the key development region for the major brewers, and Bavaria has much to offer them. The company, capitalised at US$4.9 billion but with debts of US$1.7 billion, has a brewing monopoly in Colombia, Peru and Ecuador, as well as around 80% of the market in Panama. If SABMiller were to gain control of the company, which is now valued at somewhere in the region of US$6.6 billion, it would arguably be a deal to rival Interbrew's tie-up with Brazilian beverage giant, Ambev, last year.

Most analysts consider SABMiller to be the most likely of the four to gain control of Bavaria, even though the company sought to cool expectations when it emerged as a front-runner. Having made major acquisitions in the US (Miller 2002) and in Italy (Peroni 2003), SABMiller has made comparatively minor inroads into Latin America. In 2001, it bought the monopoly brewer in Honduras, along with a stake in the only brewer in El Salvador.

However, given that SABMiller was happy with the Miller deal to allow the original owners to retain an interest, it may end up as the preferred bidder for the Santo Domingo family, in the light of its wish to remain involved. Analysts have suggested that the family could be seeking to retain as much as 25% of a merged company.

For precisely that reason, the US brewing group, Anheuser-Busch, which also harbours ambitions to move into South America and was interested in Ambev prior to Interbrew's move, is thought to be an unlikely winner, as it would be likely to want a 100% buyout.

It is possible that Heineken may also turn out to be an early faller in the race. The Dutch giant would currently struggle, say analysts, to finance such a deal. Even though reports emerged early this month that Bavaria had received a US$9 billion offer from Heineken, these rumours were denied. In fact, Bavaria has said that it has not received any firm offer as yet.

As for InBev, in spite of its massive clout, it may be that the Bavaria deal has come too soon for the Belgian-based group. Observers have suggested that InBev's game plan was to use its regional strength in Brazil to weaken Bavaria before making a move in a few years' time. But if InBev wants to prevent Bavaria falling into the hands of a competitor, it would have to accelerate its plans. InBev's CEO, John Brock, dampened speculation further by suggesting that other brewers were more interested in Bavaria at this stage.