COMMENT: Compelling logic to Interbrew's African adventure
The UK's Financial Times today reported that it had seen documents purporting that Interbrew, the Belgian beer giant and South African Breweries will merge.
SAB, listed in London, has a market capitalisation of £3.4bn (US4.7bn) suggesting that a bidder would have to offer more than £4bn.
It is believed that one of the reasons for the deal is to pre-empt a three-way merger between SAB, Scottish & Newcastle and Philip Morris' Miller. However analysts believe there are a number of other compelling reasons the deal would make sense.
Beverage analyst Stuart Price of equity analyst WestLB Panmure said that as well as giving SAB shareholders access to western earnings, "Interbrew brings strong branding skills and SAB has skills in cost reduction, which should yield significant EBITDA momentum."
There are also significant synergies especially in Central Europe and Russia. SAB has an 18% share of the Central European market and the two companies also overlap in Romania and Hungary.
"This would create yet further pressure on Carlsberg and Heineken's operations in the region and in the USA," said Price. Furthermore, "courtesy of Interbrew's acquisition of Beck's, SAB would have indirect access of Namibian Breweries (a bone of contention for SAB). There are also significant overlaps in China (Interbrew has two breweries and SAB has about 15)."
SAB reports its interim results tomorrow, and should see profit before tax of US$298m versus $310m in H1 2001. The company's earnings continue to be adversely affected by the strength of the US dollar. The merger would reduce this volatility.
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