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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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