Posted October 2011
Like a rabbit in the headlights
Japan's beverage conglomerates | To
avoid the demography-is-destiny-trap, Japanese firms are looking
overseas for growth. But it's a big leap to become a fully-fledged
international player.
Time was when nothing ever happened in
the summer. At least in the northern hemisphere. You could tell ruling
elites would soon retire to beaches and yachts when pictures of the
latest Putin manoeuvre (mostly him topless) appeared in the news: Mr
Putin diving for artefacts in southern Russia, Mr Putin fishing in
Siberia, Mr Putin riding on horseback (we forgot where that was, Russia
is so huge). Anyway, our politicians may think summer is really the
perfect time to shut down parliament for a couple of months and pretend
nothing's happening. But what are we to do, us journalists and
economists? Fill these pages with silly prattle and idle speculation
that no one really wants to know about?
Just as the sun no longer shines in summer, sending beer
sales all the way south, the silly season is not what it used to be.
This August we lurched from crisis to crisis. We saw the crashing of
various European economies, frantic efforts to save the euro and Europe,
worldwide panic selling in the stock markets, the slaughtering of
brewers' stock, America's fall from economic supremacy, cars burning in
Berlin, violence and looting in London and Liverpool and, not to forget
a civil war in Libya, civil strife in Syria, ... come to think of it the
whole notion of "nothing ever happens in the summer" is as obsolete in
our globalised times as a public telephone box. The comparison isn't
ours but it's still good.
Fortunately, mergers & acquisitions
(M&A) strategists in the brewing industry tend to feel pity for us
silly-season-sufferers and stage their deals exactly at the height of
summer. Not true? Then let us prick your memory: When did InBev take
over Anheuser-Busch? The answer: in July 2008. And when did SABMiller
announce they were going to go hostile on Foster's? The answer: in
mid-August this year.
It feels like the takeover saga of
Foster's beer business has been dragging on for years. However, at the
time of writing, SABMiller's AUD 11.5 billion bid for Foster's looked
set for success as key shareholders backed the sweetened deal on 21
September 2011 with only an outside chance of a rival offer.
Following a three-month pursuit that
turned hostile, Foster's CEO John Pollaers eventually could not but roll
over when SABMiller raised their offer to AUD 5.10 a share, a 20
cent-a-share increase on its initial offer.
Factoring in a 30 cents-a-share capital return and a
final dividend of 13.25 cents, the deal is now worth AUD 5.53 a share to
stakeholders.
The bid values Foster’s at 12.5 times
estimated EBITDA, SABMiller Chief Financial Officer Jamie Wilson
admitted. That ain't cheap, given that Australia's beer market has been
flat for the past 25 years, and it's certainly way above the average
(11.5 times EBITDA) for comparable transactions in the brewing industry
as Bloomberg pointed out.
Still, Australia is a very profitable
market, whose total profits (17.5 million hl of beer production) bankers
at JP Morgan reckon, outshine China's by far (450 million hl). That made
the market leader Foster's, who generates barrels of cash, an attractive
target.
Foster’s profit margin, or EBIT as a
proportion of sales, was 36 percent last year, higher than the 30.8
percent at Anheuser-Busch InBev NV, the world’s biggest brewer, in the
year ended December 2010, and the 23.5 percent at SABMiller in the year
ended March 2011 (Bloomberg data).
SABMiller expects the takeover deal, its costliest to
date, to close by the end of the year. The brewer secured USD 12.5
billion of loans for the bid.
Heady days are over
Once the Foster's takeover is done and
dusted, we think that the Worldbeermonopoly will be well and truly over.
Because what is there left to buy? In 2009 the big four brewers – AB-InBev,
SABMiller, Heineken and Carlsberg – already controlled about 50 percent
of global beer output and 77 percent of the beer profit pool. This is a
numerical way of expressing the plain truth that the process of
globalisation, the buying and integrating of companies in the brewing
industry is over. We have entered the age of globality as truly global
companies like AB-InBev and SABMiller are rooted in neither rich nor
developing countries but further their wealth creation by making the
most of opportunities the world over.
It’s ironic and perhaps indicative of
an Eurocentric view that at a time when the heads of western brewers are
telling investor audiences there’ll be no big-ticket M&A deals for a
while, Asian brewers, headed by three Japanese beer groups, are having
massive acquisition binges in Asia and Oceania.
Isn't that strange? While brewers in
the west look like rabbits caught in the glare of headlights, panicky
over their share price development, brewers in Japan are finally out on
the prowl hunting for dinner. So let's take a closer look at what's
happening in Asia.
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