Sector News

Would SABMiller sell MillerCoors stake to attract larger A-B InBev bid?

July 22, 2015
Consumer Packaged Goods

In the flurry of speculation over a possible acquisition of beer giant SABMiller by fellow brewing behemoth Anheuser-Busch InBev, many analysts assumed A-B InBev would have to sell SABMiller’s stake in MillerCoors to make the deal palatable to regulators.

But not if SABMiller beats them to the punch.

That idea was recently put forth by Harry Schuhmacher of Beer Business Daily. In a recent note, longtime beverage industry analyst Caroline Levy of investment banking firm CLSA describes the idea of a pre-emptive sell-off of MillerCoors by SABMiller as “interesting” and writes that it could help the brewer negotiate a better price for itself if A-B InBev ever does come calling with an offer.

SABMiller owns a 58 percent stake in MillerCoors, the second biggest beer player in the U.S. market. A tie up with A-B InBev, owner of the Budweiser brands, would combine the two largest U.S. players, which is why common wisdom has held that SABMiller’s stake in MillerCoors would have to be sold.

But as Levy describes Schuhmacher’s thinking, if SABMillers sells its stake on its own, “it would have better leverage to negotiate an attractive price than in the forced sale that would come about in a potential ABI acquisition of SAB, with the incremental proceeds to SAB itself.”

Levy points out that the risk to SABMiller comes if a buyout never comes from A-B InBev. In that case, SABMiller would be left without a cash generator in the U.S.

The merger buzz around A-B InBev and SABMiller has died down considerably since its height last fall. Many pronounced the deal doomed after Brazilian private equity firm 3G announced in March a merger deal with Heinz-Kraft, whose size, analysts said, would make a deal for SABMiller financially difficult. 3G Capital co-founder Jorge Paulo Lemann is a board member and controlling shareholder in A-B InBev. Morningstar analyst Philip Gorham wrote at the time, “We think it is unlikely that 3G would be willing and able to execute simultaneously on two substantial deals both from a financial and strategic perspective.”

Analysts have thrown out various possibilities for an alternate mega merger for A-B InBev, which is based in Belgium and has its North American headquarter in St. Louis.
Among the alternatives discussed are liquor-and-beer seller Diageo and soft drink giant Pepsi.

By Ben Unglesbee

Source: St Louis Business Journal

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