Insight - A-B InBev beats disposals target
Anheuser-Busch InBev blew its US$7bn disposals target out of the water today, completing the brewer's mission to help pay off the A-B acquisition by refocusing the company on core businesses and markets.
A-B InBev's deal to sell brewing assets across Eastern Europe for $2.2bn, if approved by the relevant regulatory authorities, has seen the brewing behemoth easily surpass its target of US$7bn in asset disposals.
It nearly got there earlier last week, when a deal to sell theme parks previously owned by A-B fetched another $2.7bn, bringing the running total on disposals to around the $6.5bn mark.
The group further bulked up its financial position this week by announcing it would sell off $5.5bn of debt to institutional investors in the US.
In short, disposals, bond issues and strong progress on synergies, have put A-B InBev in a much better position to pay down the debt on InBev's $52bn acquisition of A-B. Why did we doubt in the company's ability?
Sanford C Bernstein analyst Trevor Stirling said in a note prior to today's annoucement on Eastern Europe: "Since the acquisition, A-B InBev has raised almost $20bn in proceeds via equity issuance, disposals and improved FCF. We estimate that even after prepaying debt due in May and November 2009, the company still has access to $14bn that can be used for deleveraging."
He added: "We estimate that the company is likely to reduce net debt/EBITDA ratio from current 4.2x in June 2009 to 4.1x by the end of 2009 and 3.1x in December 2010."
Further cost cutting is expected across A-B InBev's mature markets as it looks to consolidate operations in the wake of last year's merger deal, the largest in brewing history.
From a strategic glance at markets, the obvious accusation against A-B InBev is that the firm is playing safe.
This year's deals have seen North America, Latin America and Western Europe emerge as the core markets for the firm. After selling its stake in Tsingtao in China, Oriental Brewery in South Korea and many assets across Eastern Europe, A-B InBev's exposure to emerging markets is much less than some its peers - notably SABMiller.
However, the flip-side is that emerging markets fluctuate much more than established ones - as SABMiller has found across several markets this year, and as most brewers have found in Russia, where the market is down 6% in volume so far in 2009.
ING analyst Gerard Rijk told just-drinks: "A-B InBev wants a sharper focus on big markets, like North America, Latin America and China, with a presence in Western Europe heritage markets, like Belgium and UK, to supply the global brands."
Some analysts believe that A-B InBev may yet seek to sell its brewing operations in Russia, run by Sun InBev. Its share of the beer market is streets behind market leader Carlsberg, which has a 38% share via its ownership of Baltika, and the market may begin to look increasingly unattractive should the Russian Government push through a beer tax hike in January.
One thing for certain is that there is no longer pressure on A-B InBev to ditch assets in order to firm up its Budweiser purchase. On that score, at least, the company has surpassed most expectations in its first year of operation.
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