Opinion: Why ABI Will Not Pursue SABMiller
6/8/2015
NEW YORK, June 8, 2015 –– The following is a statement from Brian Sudano, managing partner of Beverage Marketing Corporation, the leading consulting, research and advisory services firm dedicated to the global beverage industry.
Although it has long been the prevailing opinion that ABI would pursue SABMiller, I don't believe this to be so, for the following reasons:
- Synergies much lower than prior deals as percentage of ultimate price required
- Anti–trust issues in two large geographies: the United States and China
- SABMiller EBIDTA margins of approximately 20% are lower than ABI's usual 40% targets when it enters new markets
- Complexity of Africa with a large non–drinking Muslim population, poor infrastructure and affordability of beer making it unable to provide desired margins
- Large European business footprint which ABI is trying to divest, other than Belgium and Germany
- Weak competitive position in Australia
- Most importantly, no detailed insider information on SABMiller before consummating any deal which is very dissimilar to Anheuser–Busch (where both InBev and A–B were sharing best practices and InBev knew where the opportunities were before deal was completed) and Modelo (A–B had 50% ownership and board seat resulting in insider understanding of company)
Furthermore, recent issues have surfaced further strengthening my position:
- The new deal between SABMiller and Coca–Cola in Africa presents another issue. I am certain Coke has a change of control provision. So that revenue stream would be eliminated. My assumption is that the value paid in a takeover for this business will be less than what Coke would have to pay to buy back SABMiller's equity interest.
- Since the deal for Modelo was completed, G3 was formed between Warren Buffet and the Brazilian investor in ABI. Initially, these investors put most of their capital in ABI. However, that is no longer the case. With G3 buying Heinz, Burger King and, soon, Tim Horton, billions of dollars are flowing into a new investment vehicle. There is no longer a need to grow wealth and influence through ABI.
- For the Brazilian owners of ABI, buying another beer company is the end of the road for sustained growth in beer. This is not a particularly disruptive, game changing, legacy. It proves that they were great consolidators but there have been many others in business history and they will not be the first.
- I believe that ABI will be looking for transformative capability acquisitions going forward. SABMiller in my point of view does not fit.
Please contact Brian Sudano at bsudano@beveragemarketing.com with questions or comments.
CONTACT: Gary Hemphill, ghemphill@beveragemarketing.com, 646-313-1958