Comment - Anheuser-Busch InBev, SABMiller: Sounds Mad, But...?
Anheuser-Busch InBev and SABMiller subject to fresh speculation
A potential merger between Anheuser-Busch InBev and SABMiller hit the headlines again last week, after a report out of Brazil said that the Budweiser brewer is mulling an US$80bn bid for its main rival. SABMiller's value appears to have risen by a cool $9bn in as many months, with Credit Suisse tagging a potential takeover at $71bn back at the start of this year.
SABMiller's share price spiked after the latest speculation emerged, possibly making someone a lot of money in the process. A deal is not unthinkable, but the timing looks off.
In terms of regulatory barriers, a lot of analysts think that the deal would not create too many headaches, considering one is talking about a merger between the world's two largest beer companies. SABMiller would, of course, have to ditch its stake in MillerCoors in the US and also probably sell its share of the CR Snow joint-venture in China.
At the management level, meanwhile, retirement is thought to be on the horizon for SABMiller's CEO, Graham Mackay. At the same time, late last week, Business Day in South Africa reported Goldman Sachs as saying that SABMiller is vulnerable to a takeover, because it lacks a "blocking shareholder".
While MF Global analysts questioned the credibility of last week's Brazilian news report, they said there would be various strategic attractions to A-B InBev acquiring SABMiller. "These would include A-B InBev accessing what is without doubt the best emerging market brewing network in the world, economies of scale, and efficiency savings from changing SAB’s de-centralised business structure, sharing of best practice and closing its head office."
Other analysts, however, are not so sure that the synergies look attractive. "We believe that there are many significant risks and financial challenges, such that we believe it unlikely that such a deal will ultimately be consummated," said analyst group Sanford Bernstein. The group flagged up a potential "clash of cultures" between the brewers and relatively low synergy opportunities - particularly when compared with InBev's takeover of A-B in 2008.
In addition, for all the conjecture, A-B InBev appears to be looking closer to home. Having made rapid progress to pay down debt after the acquisition of A-B, the brewer is strongly focused on expansion in Brazil, turning around Budweiser and investing in China.
In March this year, A-B InBev's CEO, Carlos Brito, told analysts on a conference call: "There is lots to be done with the current business we have at hand." He added: "Right now, we are leveraging the scale that we obtained after the A-B transaction."
While there is some sense to speculation of a bid for SABMiller, the timing of the rumours might tally better with the boredom of investment bankers, keen to kick-start the endgame in beer industry consolidation. It must be said that, rather like sports agents, once such dealbrokers get an idea, their agitation alone can be enough to bring about a deal in the end.
There is also suggestion that A-B InBev wants to swoop before SABMiller gets its hands on Foster's; the assumption being that A-B InBev does not want to lumber itself with the Foster's business. However, is this a sound basis for kick-starting the biggest deal in brewing history? With InBev still digesting the remnants of A-B, it all feels too soon.
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