SAB takeover getting more expensive by the day

21st July 2016

By: News24Wire

  

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The takeover of SABMiller by Anheuser-Busch (AB) InBev is looking increasingly expensive, a merger and acquisition expert said on Thursday.

Warwick Business School Professor John Colley’s pessimism comes as “various competition authorities exact a heavy price to approve the deal”, he said on Thursday.

“The extent of divestments to gain competition clearance has come as a shock to AB InBev. This is starting to look like a very expensive purchase indeed and AB InBev may well struggle to justify it," he said.

“Instead of one in three beers worldwide being brewed by AB InBev post the deal, this is looking like one in four or even five,”  he said.

Colley’s concern comes as AB InBev announced it had won US competition approval on Wednesday, which takes it one step closer to finalising the takeover deal. The approval came with conditions that SAB sell its stake in MillerCoors and ensure doors are opened for competition from craft beer makers.

Why deal is expensive

“The European Competition authorities have been particularly demanding, similarly requiring all the European acquired businesses to be sold off,” said Colley.

"Grolsch and Peroni have gone to Asahi, a Japanese Brewer, for $2-billion,” he said. “Something of a surprise to AB InBev is that all the Eastern European assets, including Pilsner Urquell, have to be sold and are up for sale at a price tag of around $5-billion. The European Commission has required all the Eastern European assets to be sold to one buyer.

"In the US all the acquired SABMiller businesses have had to be sold at a price of $12-billion to Molson Coors in Canada, which included the Miller brand.

“While in China, the joint venture which owned Snow with around 20% market share, is being sold to the joint venture partner China Resources Enterprise for $1.6-billion.

"In effect all the purchased assets of SABMiller in North America, Europe and China have had to be sold at a combined price of around $20-billion.

“As AB InBev's total outlay was $106-billion for SABMiller, this means they have paid $86-billion for the positions in the growth markets of Africa and Central and South America," he said.

World’s first truly global brewer

However, AB InBev were in celebratory mood on Thursday, reaffirming its expectation to close the global transaction in the second half of 2016.

“With today’s agreement, we have taken a significant step forward on the transaction, which will create the world’s first truly global brewer,” said AB InBev CEO Carlos Brito in a statement.

“Our combination with SABMiller will bring more choice to more beer drinkers - and extend the global reach of our iconic American brands, such as Budweiser - in markets outside of the US.

“We will continue to invest heavily in the US, including our efforts to build our entire portfolio of brands, support and incentivise our wholesalers, and compete effectively in a dynamic and fast-changing market. While we will make some adjustments to certain aspects of our US sales programmes and policies, our fundamental approach and commitment to this market will not change. We will continue to compete and win in the US marketplace going forward.”

AB InBev has now obtained approval in 21 jurisdictions. Clearance decisions, with or without conditions, have now been obtained: in North America (US and Canada); Asia-Pacific (Australia, India and South Korea); in Africa (Botswana, Kenya, Namibia, Swaziland, Zambia, Zimbabwe and South Africa); in Europe (the EU, Albania, Moldova, Turkey and Ukraine); and in Latin America (Chile, Colombia, Mexico and Uruguay). Approval in Ecuador is subject to certain conditions.

In the remaining jurisdictions where regulatory clearance is still pending, AB InBev will continue to engage proactively with the relevant authorities to address their concerns to obtain the necessary clearances as quickly as possible.

SABMiller reports higher earnings

SABMiller, which is holding its annual general meeting on Thursday, reported higher first-quarter sales. Net producer revenue advanced 2% on an organic, constant-currency basis in the three months through June, it said in a statement on Thursday.

"This was another quarter of good underlying momentum," said SAB CEO Alan Clark in a statement.

SABMiller is facing mounting pressure from investors to seek a higher cash bid from AB InBev, after a drop in the pound following Britain’s vote to leave the European Union raised concerns about valuation and soured appetite for the $103-billion deal, Bloomberg reports.

The takeover now hinges on a regulatory nod in China.

Edited by News24Wire

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