Exhale - there's no bid as yet from ABI for SABMiller
Welcome back – to a landscape that continues to feature both Anheuser-Busch InBev and SABMiller as competitors and market leaders in the global brewing industry. Plural is not yet singular. And over the past few weeks there’s been a notable lessening of media angst over an imminent bid by ABI for their closest rival, although SABMiller’s buoyant share price has been under the spotlight.
My last column looked at reasons why an ABI bid might be unsuccessful, and even if it was capable of acquiring SABMiller the reasons why such a bid might ultimately prove to be unfruitful. This second point was given slightly short shift. Beyond being able to extract less than expected synergistic savings add to this list the complexity of running an enlarged global brewing company and an overlapping duplication of international brand portfolios.
What, then, what are the alternatives? For a fanciful moment, let’s consider professional sports. Given the recent amount of money forked out, US $2 billion, for the Los Angeles Clippers of the National Basketball Association, ABI could acquire the team and the remaining 29 franchises for the estimated price tag of SABMiller. Some, the marquee franchises, the Lakers, Celtics and Knicks, will cost considerably more; some such as the Pacers, Pelicans and whatever Charlotte calls its team these days, considerably less. Broadly speaking you could acquire the lot for less than $70 billion.
The NBA is already a global property but largely American-centric. The chance to operate a sports league that with centralised ownership could come close to guaranteeing parity between teams, expand to include European and Asian divisions or establish separate leagues, and maximise television revenues – hey, there’s a much greater return available here than from integrating SABMiller. (And let’s not overlook the cross-promotional opportunities with ABI’s beer brands.)
This isn’t going to happen, alas. But the best ideas are frequently distilled from the blue sky outlandishness of such starting points. The thing here is that there’s more than reasonable potential for something completely unanticipated by industry observers to become ABI’s next strategic move.
ABI may the world’s leading brewer as measured by volumes, but with Anheuser-Busch, Modelo and AmBev success stories in the New World, the company is underweight as measured by both volume and profitability in Europe and Asia – and absolutely nowhere in Africa.
It’s the absence of an African presence that makes some arrangement with Diageo enticing. The largely spirits-focused group doesn’t have a brewing geographic footprint anywhere to speak of, save in countries clustered in East Africa, Nigeria, Ghana and elsewhere on the continent.
Diageo’s beer-related revenues are in the region of $2 billion annually, of which approximately half is derived from Guinness. So there’s a two-fold prize in acquiring the group’s beer assets – exposure to high-growth African economies and an opportunity to make Guinness a truly global brand.
The question is what would entice Diageo to become a solely spirits-based organisation. Beer and brewing is a lot more of a ‘core’ activity than, say, previously divested fast food assets. It also shelters the company from the considerable financial vagaries of spirits production.
The alternative would be, as with the partnership of Carlsberg and Heineken dismembering Scottish & Newcastle, launching a joint bid a company interested in acquiring Diageo’s spirits-based business. But here’s there’s no obvious bidder to partner with, at least within the known world of drinks producers.
Asian markets remain largely a story of growth today and – maybe, just maybe in China – profitability tomorrow. There are opportunities in Southeast Asia. One of the big prizes is Sabeco, Vietnam’s government-controlled market leader with beer volumes around 12 million hectolitres annually. Vietnam is one of a handful of markets worldwide in long-term double-digit growth, yet one absent an ABI presence. Outright control would be unlikely but a minority stake, akin to Carlsberg’s interest in Habeco, could lead to bigger outcomes in the not too distant future.
ABI has a minimal presence in India, lagging behind UBL/Heineken, SABMiller and Carlsberg. Yet the country’s beer volumes, as measured on a per capita basis, remain miniscule, leaving scope for new entrants. Investment continues with the hope that changes in beer duty structures and inter-state tariff barriers will act as accelerants for already promising growth trends.
There are a handful of domestic Indian brewers that would be worth looking at acquiring but here ABI would be better served going the route that Carlsberg is pursuing, acquiring greenfield sites and building up presences on a state-by-state basis, regionally at first, then potentially nationally.
Often left out of global M&A speculation are Japan’s brewers, especially market leaders Asahi and Kirin. The former has less international exposure than the latter and whether a company competing primarily in a declining Japanese beer market is an attractive acquisition is questionable. But both have experience of creating drinks in the Happoshu and New Genre categories, drinks that have moved away from malt-based starting points, which might find favour beyond Japanese consumers. In short, it’s the R&D efforts here that are of interest.
Kirin has assets in Australia and New Zealand with its ownership of Lion, a 48% stake in San Miguel in the Philippines and latterly outright control of what was Schincariol in Brazil. It’s this last shareholding that probably scuttles a deal. What is known today as Brazil Kirin probably could be divested, and Brazil’s privately-owned Grupo Petropolis would be a likely bidder. But whether you’d want to balance gains in Japan and Oceania against creating a stronger number two player in Brazil is a questionable outcome.
What’s often overlooked in the reporting of multinational brewers is the volume of soft drinks they produce with their annual totals running into the tens of millions of hectolitres. ABI is no exception with substantial partnerships with PepsiCo in Argentina and Brazil. There are production and logistic synergies with beer and CSDs, but bidding for PepsiCo would seem beyond ABI’s financial grasp. Pepsi’s market capitalisation is currently in excess of US $142 billion, more than twice that of a SABMiller.
But the logic is sound. Rather than convert drinkers of other beverages to beer on occasion, why not simplify the equation and start acquiring assets amongst energy drinks and mineral water producers? Ideally a company with a brand with awareness well in excess of actual volumes. An attractive possibility here, to my thinking, is Austrian headquartered, privately held Red Bull.
We’ve just touched on a few of the possibilities to which ABI could dedicate cash and management time. Truth will almost certainly be stranger than the suggestions posited here. But – taking a deep breath – I don’t think ABI should, or will, bid for SABMiller. In a universe filled with limitless possibilities, many of which allow growth both of international brands and geographic footprint, hopefully it’s been demonstrated here that there are better options for the world’s local brewer.
A verison of this column was first published by the good people at www.just-drinks.com