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SABMiller may be takeover target: brokers

Brussels - With Bud swallowed and almost digested, there is growing speculation that Anheuser-Busch InBev may be thirsty for another deal.

Some brokers have already been exploring the possibilities and see SABMiller [JSE:SAB], AB InBev's nearest rival, as a prime target as this would increase the world's largest brewer's exposure to fast-growing emerging markets.

Such a takeover would combine AB InBev's Budweiser, Stella Artois and Beck's brands with SABMiller's Miller Lite, Peroni and Grolsch and produce about a third of the world's beer.

Belgium-based AB InBev bought Anheuser-Busch for $52bn in the world's second-biggest cash deal in 2008. With its three-year savings target of $2.25bn likely to be exceeded, its debt - although still high - is falling fast.

AB InBev executives are focused on internal growth and bringing its net debt to core profit (Ebitda) ratio down to 2 times by 2012, but chief financial officer Felipe Dutra said the debt ratio target did not preclude it buying again. 

Net debt has fallen to $39.7bn at the end of 2010 from $56.7bn just after the Anheuser-Busch deal, bringing its net debt/Ebitda ratio down to 2.9 from 4.7.

SABMiller


Analyst Eddy Hargreaves at brokers Collins Stewart says AB InBev could and should bid for SABMiller to create a beer giant he dubs ABSAB. He says it has already looked closely at SABMiller and a deal would be strategically and financially sensible, with anti-trust issues not a big concern.

"We think AB InBev ought to be interested in SABMiller, and SABMiller's interest in Foster's risks drawing a bid. We think it is likely AB InBev would move on SABMiller before the latter could consummate the Australian transaction," he said.

SABMiller is favourite to buy Foster's beer business for more than $10bn after the Australian group decided to spin off its wine unit to focus on beer.

Hargreaves says an AB InBev deal at £28 a SABMiller share would value the brewer at $71bn. After a $8bn disposal of SABMiller's stake in MillerCoors, AB InBev's closely watched debt to ebitda would rise to 4.2 times compared to the 5.5 times after its $52bn Anheuser-Busch 2008 deal.

Credit Suisse's Anthony Bucalo says, "Over time we believe both these companies strategic interests will continue to align and this would be of benefit to both sets of shareholders".

The geographic fit would be good with SABMiller adding its presence in Africa, eastern Europe, China, Colombia and Peru to AB InBev's in North and South America.

The United States would present a problem as the combined group would have a near 80% market share and would almost certainly have to sell SABMiller's 58% stake in MillerCoors, its US joint venture with Molson Coors.

Trevor Stirling, analyst at Bernstein Research, says AB InBev would struggle to get a good price for the stake because there would be effectively only one obvious buyer, Molson Coors.

ABSAB could also take hits in China, where it might be forced to relinquish SABMiller's 49% in brewer Snow, as well as in Africa, where SABMiller Africa has a cross shareholding with privately-owned French drinks rival Castel.

"If I were AB InBev, I would ask could I pay £28 to £30 and still make money on the deal and I think the answer is no," Bernstein's Stirling said.

Soft drinks would be another problem. AB InBev is the biggest bottler outside the United States for PepsiCo  and SABMiller a big bottler for Coca-Cola. The combined group would have decide between the two soft drink giants.

Other options

The most obvious purchase for the AB InBev would be the other half of Grupo Modelo, the Mexican brewer of Corona beer which holds a 56% share of the world's sixth-largest beer market.

AB InBev took a 50% stake via its purchase of Anheuser-Busch, but the joint owners do not see eye to eye.

Modelo's controlling family shareholders challenged InBev's right to own the stake, although an arbitration panel dismissed their $2.5bn claim last year.

Grupo Modelo itself has consistently said it has no plans to sell an equity stake to its partner.

If the Modelo families do eventually sell it is reasonable to assume that the deal would not be cheap - probably about $15bn, which would include a premium of some 50%.

Other options include spirits and beer group Diageo.
 
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