When the biggest brewer in the world, AB InBev, bought the second biggest, SABMiller, it wasn’t difficult to figure out why writes Amelia Morgenrood. Reuters
JOHANNESBURG - When the biggest brewer in the world, Anheuser-Busch InBev (AB InBev), bought the second biggest brewer, SABMiller, it wasn’t difficult to figure out that it would be a long bedding-down process, particularly because it bought SABMiller at a huge premium.

Three years ago, its offer represented a premium of about 50 percent to the market price, and the process of finalising the deal took more than 18 months. The competition authorities had many pre-conditions, but AB InBev was determined.

The advantages are yet to be reflected in its profits.

The share price of AB InBev didn’t take kindly and lost 40percent of its value in both the US market and the euro market over the past 12 months. On the JSE, it came down from R1 700 to just above R1 000 (it touched R2 000 in the middle 2016).

The market reaction to the dividend cut last week was nasty - a drop of more than 10 percent in one day is unusual for such a big company! The value of the share price decline on Thursday alone was equal to almost the entire market capitalisation of Standard Bank.

AB InBev halved its dividend to reduce the debt it incurred when it bought SABMiller. It also warned shareholders that dividend growth is expected to be modest. Its third-quarter earnings report, in general, wasn’t exactly what investors expected. Its much-wanted exposure to emerging markets weighed on profits, due to the volatility and weakening of currencies.

AB InBev has historically been an acquisitive company, but last week it said it was reaching the end of the road and will prioritise organic growth. It noted that, in addition to reducing debt, its main priorities for capital allocation included investing in its brands and taking advantage of organic growth opportunities. AB InBev said it would consider suitable acquisitions if they arose, but subject to its strict financial and deleveraging commitment.

In the September quarter, AB InBev said its overall revenue grew 4.5 percent to $14.7 billion (R215bn). Revenue from global brands, which include Budweiser, Stella Artois and Corona, improved by 7.7 percent globally and 10.6percent outside of their home markets. Over the nine months to end-September, it was up 8.7 percent globally and 13.3 percent outside of their home markets.

A diverse group of markets contributed to this growth, including China, Mexico, Western Europe and many of those in Africa. At the same time Brazil, Argentina and SA struggled.

You can now buy shares in the biggest company on the JSE for 40percent less than you could 12 months ago. AB InBev is one of the world’s top five consumer products companies. The company is geographically diversified. Its brewing heritage dates back more than 600 years, spanning continents and generations. It is headquartered in Belgium; it has 155 000 employees in 25 countries.

The original AB InBev was formed in 2008 through successive mergers of three international brewing groups: Interbrew from Belgium, AmBev from Brazil and Anheuser-Busch based in St Louis, Missouri, US.

Its portfolio of more than 500 brands includes Castle Lager, Hansa Pilsner, the Redds brands, Budweiser, Corona and Stella Artois. Sixteen of its brands have annual sales of more than $1bn. It has a strong foothold in Africa, where beer consumption is on the rise.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. 

The views expressed here are those of the author and are not necessarily the general view of the entire PSG entity. AB InBev shares are held on behalf of clients.