The arrival of ‘Goliath’
Here's the rundown on who wins, loses in SABMiller takeover
And so it comes to pass, perhaps inevitably. The board of SABMiller has agreed in principle to a possible recommended offer from AB InBev, one which offers shareholders £44 per share in cash. Or, in the case of Altria and the Santo Domingo family, SABMiller’s largest shareholders with 27% and 14% equity stakes, a partial share alternative.
Remaining now prior to a formal offer are two weeks of due diligence, and an anticipated unanimous recommendation by the SABMiller board.
The £44 offer is pretty much exactly a 50% premium over SABMiller’s closing share price of £29.34 in London on the 14th September. It’s also a more modest 16.7% advance on SABMiller’s closing value as recently as 5th March of this year. One wonders if the value of SABMiller shares hadn’t collapsed in mid-August and languished thereafter if we’d be reading of an ABI bid of any sort.
Yet fortune favours the brave (or bold) and this quality AB InBev CEO Carlos Brito seemingly possesses in spades. In the imagination he’s starting to resemble a chess grand master, one who’s at last five moves ahead of his opponents.
This bid has been on the card for ages yet seemingly SABMiller was unable to prepare a decisive defence in advance. When you’re announcing as late as this past Friday that you can cut your run rate costs by another $500 million by 2020, or 5% of $10 billion annual operating costs – well, you’ve not so much endeared yourselves to shareholders as proven your opposition’s point that it can better extract value than the current management.
(And SABMiller’s figures, strangely, mirror the same argument used by Anheuser-Busch in its defence of InBev’s bid when it trumpeted its Blue Ocean programme as capable of delivering $1 billion in annual savings. Again: the right idea, far too late.)
As a small stone creates ripples in a still pond, a transactional boulder of this size is bound to create Tsunami like conditions for the global brewing industry.
There are winners and losers, some immediately apparent; some longer term. Here’s the rundown of how the transaction effects parties interested far and wide:
Winner: ABI shareholders
Analysts vary as to how long this transaction will prove to be earnings enhancing – but on the whole we’re looking at medium term estimates. If I were ABI shareholder (and I’m not) I’d be feeling pretty good about upticks in share value and dividend potential.
Winner: SABMiller shareholders
You’re looking at a 50% gain on your investment – yeah, well, it’s time to break out the holiday brochures and give yourself a pat on the back. In the end SABMiller’s management probably extracted as much value as they could in this negotiation.
Winner: Molson Coors
Make that a big, big winner. SABMiller’s joint venture partner in US brewing unit MillerCoors most likely has first (and last) rights of refusal when ABI needs to shed itself of SABMiller’s 58% equity stake due to almost certain regulatory objections. The price tag, estimated at $9 billion by brokers Canaccord Genuity, won’t be a stretch for Molson Coors.
More importantly, Molson Coors now has an opportunity to redefine its future. Neither Miller nor Coors are performing well in the American markets – even the most causal beer drinker can identify that American light lager isn’t ‘craft’ – and its market share has been in seemingly inexorable decline.
So while Molson Coors may well relish the challenges of going it alone – and an opportunity to streamline duplications in the Miller and Coors brand families – it could also invite a new partner to shoulder the burden. Heineken can’t, Carlsberg might be interested but its offer would duplicate that of the established ‘import’ Heineken. There’s an opportunity to partner with a brewer unexpected – perhaps Kirin, or Asahi? Japan’s leading brewers have been relatively isolated in the on-going industry consolidation and they could offer new brands and markets in return.
Winner: China Resources Enterprise
For much the same reasons as Molson Coors – an opportunity to reclaim control of its Chinese market leading JV. If regulators don’t object to a combination of CR Snow with ABI’s existing Chinese assets, it may well welcome the Brazilians-Belgians. Or it could partner with Carlsberg, with the Danish brewer a strength in western Chinese provinces – yet this pairing may again face market share regulatory concerns.
The brewer of Guinness over the last year or so has been tidying up its JVs and minority stakes in brewers around the world. Is it being readied for sale? Beyond the world’s most recognisable stout it does offer market strengths in sub-Saharan African markets, namely Ghana, Nigeria and Kenya. The opportunity value of these markets will increase with an ABI-SABMiller marriage. The likely bidder: Heineken, the brewer most likely to capitalise with its experience in African markets.
Winner: Pilsner Urquell
The world’s first lager is also the diamond in SABMiller’s brand portfolio. And it is also the leading global beer brand possessed by any multinational that most resembles a craft beer brand. So there’s scope to position it as a super-premium offering in additional markets globally. That is, as long as it’s brand authenticity is protected (see ABI’s handling of Beck’s, now not so much German).
Winner: craft brewers
Decidedly so: ABI might as well rename itself ‘Goliath’, for that’s how the brewer will be portrayed by craft brewers in all markets of the world for ever after.
This isn’t a dig at AB InBev per se; rather, it’s the realisation that work being undertaken by SABMiller in beer styles and brand development may well perish as ABI seeks out cost-cutting duplications post-completion.
Put another way: two heads are better than one. For those who had the fortune to wander through Anheuser-Busch’s pilot brewery in St Louis pre-InBev and have wondered what ever happened to hundreds of good ideas, you’ll know what I mean by creative loss.
Loser: the supply chain
ABI has been under fire for some time now for its payment terms to suppliers. Some fare better than others – raw materials and packaging suppliers generally receive quicker payments than those selling capex items such as brewhouses, filtration systems and packaging lines.
SABMiller paid more promptly, on the whole, so there’s a loss. But, again, it is worth noting that in its plans to cut a further $500 million in run rate costs that 70% of that was expected to be achieved from suppliers. So it’s not so much that ABI is aggressive on payments terms – it’s just that it’s more efficient in achieving the end result.
Loser: South Africa
The growth of SAB from modest origins into a multinational force has been a source of pride for South Africa and, in a world where power resides as much with multinationals as government’s, helped redress the balance been developed and developing economies. If there remains a listing on the Johannesburg stock exchange that’ll help ameliorate the change in address – but the ownership change is still going to sting.
To be decided: sub-Saharan Africa
SABMiller has taken its African heritage, and the CSR role that is part of this, seriously. For example, its development of sorghum and latterly cassava based beers has helped tens of thousands of indigenous farmers to enter the formal economy.
This is a responsibility that will soon fall to ABI’s senior management – and they would do well to exercise sensitivity. There are possibly costs that could be cut, but there is a much greater social good at stake that should continue to be nurtured.
In the end, none of this may come to pass. There are still regulatory hurdles to overcome but a willingness to stump up potentially $3 billion for a reverse break clause suggests ABI is not so much confident but certain that it’s ducks are in a row.
And so we’ll have a big, brand new brewer, one that, as Carlos Brito has stated time and again will be ‘the first truly global beer company.’
Whether it will be a better world for beer and brewing remains to be seen.
A version of this article was first publcished by the good folk at www.just-drinks.com