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Could Anheuser-Busch InBev IPO trigger brewing consolidation in South-East Asia? - Analysis

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With the likelihood increasing of a flotation of one of its regional operations, Anheuser-Busch InBev looks set to start the next brewing consolidation chapter - this time in South-East Asia.

South-East Asia could be at the centre of beers next big consolidation wave

South-East Asia could be at the centre of beer's next big consolidation wave

Earlier this year, reports claimed A-B Inbev was lining up to launch an IPO of its unit in Asia. While the group declined to comment specifically on the claims, a spokesperson told just-drinks at the time: "We are always looking at opportunities to optimise our business and drive long-term growth."

The opportunity in Asia for A-B InBev, according to a recent analyst note, could be a move on an existing leading player in the booming beer markets of Vietnam or the Philippines - or even both.

In a note to clients earlier this month, Trevor Stirling at Bernstein took an in-depth look at the brewing giant's reasoning behind an IPO move. Stirling set the scene by citing comments made by A-B InBev CFO Felipe Dutra in late-February: "If we ever considered such a thing [an Asia IPO]," Dutra said, "I think the merits are more in terms of creating a platform for future M&A, establishing a local champion. That could potentially help deleveraging too but, given the pace of deleveraging at the current liquidity levels, that would never be the main rationale for such a thing."

Stirling then highlighted the confirmation given around the same time by management at Asian powerhouse ThaiBev, that "they were investigating partnership options with a global brewer".

And so, a theory is born.

"A-B InBev has made no secret of their desire to expand in the region, especially in South-East Asia," Stirling writes. "The lack of attractive and available potential targets is a clear limiting factor. A separately-listed A-B InBev Asia could potentially bring into play assets that would not be up for sale in return for a cash consideration only."

Exhibit A is in Vietnam. When the country's government privatised Saigon Beer Alcohol & Beverage Corp (SABECO) in late-2017, ThaiBev took majority control of the domestic brewer, which, along with Heineken, dominates the beer market in the south of the country. While the high price of the 54% stake put A-B InBev off in the initial auction 18 months ago, a partnership of sorts with ThaiBev for SABECO could be the way forward.

"ThaiBev has material brand portfolio gaps in their SABECO Vietnam business, which could be remedied through a partnership with A-B InBev," suggests Stirling. "A-B InBev would be a good partner for ThaiBev in Vietnam, bringing brands, additional wholly-owned brewing capacity to reduce reliance on partners and also a wealth of turnaround experience and global best operating practice to the business.

"In our view, exchanging ThaiBev's stake in SABECO in return for a stake in a publicly-listed A-B InBev Asia entity (at the right price) would be an attractive way of accessing these benefits in Vietnam and adding incremental exposure to attractive markets for ThaiBev shareholders."

The other sizeable consolidation opportunity in the region is over in the Philippines, where San Miguel Breweries rules the brewing roost with over 90% market share. The company is owned by San Miguel Corp's namesake Food & Beverages division and Japan's Kirin Holdings, which has a 48% holding.

In his note, Stirling notes that San Miguel has posted a sales CAGR of 13% over the last four years, with the outlook for continued growth described as "strong".

"We understand that Kirin has a right of first refusal in the event that San Miguel Food & Beverages sells its shares in San Miguel Breweries," Stirling says. "While Kirin are unlikely able to unilaterally drive a deal with A-B InBev/ A-B InBev Asia, they are likely to have effective negative control and so would have a seat at the negotiating table.

"We would view the transfer of control over San Miguel Breweries to a newly-listed A-B InBev Asia coupled with Kirin exchanging their stake in San Miguel Beverages for a stake in A-B InBev Asia as a positive for Kirin shareholders. Such a deal would give Kirin exposure to earnings from a more diversified base of attractive markets with strong positions and management. We would expect them to leverage their negative control to protect/enhance their interests."

According to Bernstein estimates, Asia Pacific accounts for around 40% of global beer volumes, but only 33% of sales by value. Coupled with the migration to metropolitan cities being witnessed in the area, the scope for premiumisation - in the longer term, at least - positions the region on the same market development curve of China, where A-B InBev is enjoying strong growth.

The temptation to replicate the Chinese success elsewhere in South-East Asia, then, would appear to be the driver behind A-B InBev's IPO designs.


Expert Analysis

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