Brussels - Anheuser-Busch InBev's CEO says a study of SABMiller's African beer markets and talks with top shareholders led to an “alignment of stars” that drew it to its nearest rival.
But observers say the real catalysts for the $100 billion takeover proposal made public on October 7 are a steep fall in SABMiller's share price, search for growth beyond AB InBev's declining core markets and a desire not to give SABMiller's new management enough time to execute a workable defence.
Analysts have speculated on the tie-up of the world's top two brewers for years. Chief Executive Carlos Brito told a conference call last week that his company has been eyeing its rival for “quite a while”.
In the last few months though AB InBev has done “deep dive” studies of the top nine African markets, which would include SABMiller markets such as South Africa and Nigeria.
AB InBev's larger shareholders, principally Belgian and Brazilian families, have also approached SABMiller's two main investors, cigarette-maker Altria and the BevCo company of Colombia's Santo Domingo family, which together own 40.5 percent of the UK-based brewer.
“Those two things were not the case a year ago, knowledge about Africa and knowledge about the intentions of those two shareholders, in terms of them being at least receptive to an approach,” Brito said, while acknowledging that BevCo had not given its support to his proposal.
Target SABMiller has called the approach “opportunistic”, timed to take advantage of a double-digit decline in its share price in July and August, depressed by weaker emerging market currencies.
“They saw an opportunity and they jumped on it,” said Morningstar analyst Phil Gorham.
Looking back, AB InBev's shares have outperformed those of its target since 2010, meaning AB InBev's market capitalisation has swollen to beyond twice that of SABMiller from 1.6 times five years ago, making a purchase easier to fund.
Trouble at home
While the share price may explain the exact timing, analysts say AB InBev's own performance woes and changes at SABMiller also played a role.
In just over a year, the world's second largest brewer has replaced its chairman, chief financial officer and the head of its US joint venture MillerCoors. CEO Alan Clark has only been in place since April 2013, succeeding long-standing leader Graham Mackay who has since died.
“It's well-known that the management is not as stable as it used to be,” said Berenberg analyst Javier Gonzalez Lastra.
SABMiller agreed a deal last year to combine bottling of soft drinks in Africa with Coca-Cola. Given time, industry sources say it could make its business larger or its ties more complex, making it harder for a predator to swallow.
The brewer tried last September to merge with Heineken but was publicly spurned in an episode that banking sources suspect helped make the company look more vulnerable.
There was also increased speculation among analysts and in the press about a possible tie-up between SAB and liquor giant Diageo.
HSBC said investors should also not ignore the fundamental weakness of AB InBev's core markets of Brazil and the United States, saying the company has been driven to pursue a merger “out of need”, rather than from a position of strength as it had in the past.
Its US volumes have declined in every year but one of the past six, with margins now slipping, while Brazil, a strong growth market for years, is now mired in recession.
The United States and Brazil make up just over half of AB InBev's volumes and some two-thirds of its core profit (EBITDA).
Exane BNP Paribas analyst Eamonn Ferry said AB InBev's US problems were structural, with smaller craft players steadily gaining market share, while it was hard to see Brazilian consumers spending freely for the next year or two.
SABMiller has also been hit by the weakness of local currencies, notably the South African rand and the Colombian peso, but the markets themselves have largely been growing.
Africa, meanwhile, is expected to see a sharp jump in the legal drinking age population in the years ahead as well as increased beer consumption among a fast-growing middle class.
Africans drink 9 litres of beer per head per year, compared with a global average of 45. However, alcohol consumption is in line with the global average, meaning brewers do not have to find new drinkers, but only get existing drinkers to switch to their beers.
“SABMiller is exposed to volatile markets, especially in Africa and less developed Latin American countries, but Africa is in that sweet spot now. If you want volume growth, it's SABMiller. It's the last frontier of beer,” said Ferry.
REUTERS