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11/16/2015

What's the Big Deal? ABI-SAB "NewCo" Will Be Most Profitable CPG Co in the World

Global company created by AB InBev purchase of SABMiller will be by far largest brewer in world, over 3x as big as #2 Heineken. It will sell about 530-535 mil bbls of beer, excluding SABMiller's US volume, compared to Heineken's "group volume" of 169 mil bbls in 2014, including associates/JVs. Co will also rank #1 worldwide in earnings among all consumer packaged goods (CPG) companies. EBITDA will be estimated $24 bil based on latest fiscal yr data, according to AB InBev. How big is that? That's $4 bil ahead of #2 Nestle and nearly 2X Coke and Pepsico. And it will earn 6x as much as Heineken, 10x as much as Molson Coors after it buys rest of MC. With $64 bil in revs, newco will be #4 in CPG-land, tied with Unilever, behind only Nestle, P&G and Pepsico. By the way, Newco is name of holding company created to buy SABMiller as "best way to merge UK and Belgian companies," ABI ceo Brito said. But so far "we haven't spent a second thinking about" naming brewing/beverage co that will result, he told INSIGHTS.

This is historic and altogether massive deal, but it ain't really about the US. Much more about Africa, where beer biz expected to grow substantially over next decade and ABI had virtually no biz. Key implications for US flow from simultaneously announced secondary deal: sale of SABMiller's 58% stake in MillerCoors to Molson Coors for $12 bil. (Details below.) Contrary to fears stoked in media by members of Congress and others expressing "concern" about potential impact on craft brewers' access, deal has no immediate impact on any current craft brewer or a single brand sold in US. Molson Coors will get every brand in MC portfolio, including Redd's and the imports, plus all rights to Miller brands sold internationally. Looks like ABI, mindful of what happened with Modelo purchase, wanted as "clean" and complete a deal as possible before taking it to the Dept of Justice. That won't stop Senators, attys, & advocates from asking for hearings, scrutiny, and more.

Deal Creates Another Stronger Competitor to AB in US There's a kind of double irony here. Most important impact in US: for 2d time in 3 years ABI did deal that simultaneously dilutes importance of US biz as % of global biz and strengthens key competitor here. Last one was purchase of Grupo Modelo. And just as Constellation became far stronger competitor to AB in US, Molson Coors/ MillerCoors likely to be stronger competitor here now too, certainly financially. Table below shows dilution effect:

ABI 2014 New Company
US as Share of beer colume 27.7 18.0
US as Share of Revenue 30.0 22.0
US as Share of EBITDA 32.5 24.9

In new company, biggest share of revs (33%) and EBITDA (40%) will be Latin America. North America comes next at 26% and 28% respectively. Mexico, Africa, Asia Pacific and Europe each between 8-13% of revs and 7-9% of EBITDA. SABMiller really gives ABI balance. ABI adding hundreds of brands globally. Unbelievably, it will have #1 or #2 brand in 24 of 30 largest global markets! Opens door for new brands to join AB fold in US (as long as they're not already here in MC portfolio). But with US a smaller part of global beer/beverage co, will that impact focus, investment and/or M&A strategy in US? As deal announced, Brito reiterated ABI's focus on top-line growth, including its continued commitment in US. AB has already said it will increase spending here in 2016. In M&A, AB bought 3 craft brewers in last 12 mos and has a couple more deals in hopper, we hear. Will that activity slow down as it tries to clear SABMiller acquisition with Justice?

What's the Next Big Deal? Things Go Better with Monogamy With its insatiable appetite, gotta already wonder what's next big deal for ABI in a few yrs. Perhaps Coke? ABI and SABMiller together sell about 100 mil bbls of soft drinks. HSBC analyst Carlos Laboy addressed this at Beer INSIGHTS Seminar, saying: "If I'm Coke I'm worried, because I'm next." ABI will be 2.7X net debt to EBITDA within 3 yrs after deal, Carlos figures. It will be 1.5X-2X larger than Coke. Given Coke's inefficiencies and operational weaknesses, "to me it's like Disney World for ABI." That's where AB "thrives," making money in those situations. In any case, "if I'm the Coca-Cola company one of the things I'm requiring is monogamy. The idea that ABI could be a Pepsi bottler in Latin America and the largest Coke bottler in Africa I think is going to be really tough for Coke to swallow. For us it seems like a pretty easy decision for ABI."  

Publishing Info

  • Year: 2015
  • Volume: 46
  • Issue #: 22
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