ABI to Acquire SABMiller in 2013?

FILED SEPTEMBER 27, 2011

Dear Client:

So say the bankers. "In a global brewing industry marked by huge consolidation over the last decade, bankers are hopeful of an $80 billion plus deal to end all deals between the industry's two giants, Anheuser-Busch InBev and SABMiller," writes Reuters yesterday. The key word here is "hopeful", as bankers are the ones who garner huge fees from such deals. But unlike previous pieces on a possible hookup between these two brewing elephants, this Reuters piece goes a little farther, suggesting that "analysts and bankers" are looking at 2013 instead of 2012 for a deal because the Foster's deal has made SABMiller too big to swallow now. But Reuters says ABI "will not be deterred from making a move for SABMiller" in 2013. "Brito said its debt would fall during 2012 to levels which made further acquisitions possible."

Also, it is said that Brito is partial to the high-margin Australian beer market and "although a Foster's deal will add to the cost of an eventual SABMiller takeover, it would give a combined group an even wider spread of the world's beer market."

Says a banker: "AB InBev has been built by a string of good M&A deals over the last decade so the market is likely to support one final deal based on its impressive record especially with the Anheuser-Busch deal."

A deal would likely go for about $80 billion, but would entail $13 billion of disposals to get around anti-trust issues in the U.S. (MillerCoors stake to Molson Coors) and China, along with annual cost savings of about $1 billion.

OUR TAKE. I've publicly been a skeptic on this deal, but I'm starting to think this is going to happen. Before now, ABI buying SABMiller was just a lot of buzz and perhaps wishful thinking by a few bankers that stand to gain. And honestly, it still is. But the frequency and the caliber of financial reporters writing about it is starting to convey a feeling of inevitability about it. Obviously bankers are talking the deal up at an elevated pace on the heels on the Foster's deal. But when looking at a deal like this, the motivations of two constituents stand-out: The management and the shareholders of SABMiller, (as we are assuming here that ABI, being acquisitive, would indeed pursue such a deal).

Indeed, with SABMiller chief Graham Mackay set to retire in two years, the timing may be fortuitous, although he told the Journal he had no knowledge or opinion of the deal, nor would he. As financial writer Anne Crotty wrote in the South African Business Review yesterday, assuming a 30% take-out premium on SABM's stock, its top execs stand to make a combined $1 billion on their options. Who else would give them a 30% premium at this point than ABI?

And then you have the actual shareholders. In SABMiller's case, two shareholders stand out: Altria which holds a 27.1% stake as a legacy of SABMiller's 2002 deal to buy MBCo, and the Colombian Santo Domingo family with a 14.2% stake which dates back to SABMiller's deal to acquire Bavaria in 2005. A 30% premium on a stock that's doubled in five years but hasn't done much in the last year may be appealing to both those guys in this market. The end game is in sight.

So bottom line, this deal could very likely happen. Unless, of course, it doesn't. I'm reminded of my friend Trevor Stirling of Bernstein, whose opinion I value, saying at the Summit that while the deal "does have some strategic attractions", the fact that the two companies have very little overlap "reduces the opportunity for classic synergies such as closing redundant breweries, merging distribution networks, etc." Also, there's the "mega-clash of cultures" that would occur.

But still, InBev and A-B didn't have much overlap either, and InBev dispatched A-B's culture pretty quickly. Problem solved. So.... the deal happens. Now what?

In the US, the conventional wisdom is that ABI-SABM sells its stake in MillerCoors to partner Molson Coors (likely taking a haircut on the deal). Under this scenario, the only difference to the blue-silver network is that SABMiller is out of the picture, and Molson Coors takes control of the whole enchilada. It would create a lopsided market: ABI-SAB would be so much larger than Molson Coors globally that it could utilize its scale to some effect. On the other hand, presumably Molson Coors would be that much more nimble and not laden with debt from an $80 billion deal that it would rally. But we're getting ahead of ourselves. Let's see what transpires.

MILLERCOORS UPS MARKETING IN H2

MillerCoors will spend almost 20% more on marketing and media in the back half of 2011 vs. the same period in 2010, write top marketing and sales execs Andy England and Ed McBrien in a missive to distributors, obtained by BBD through illicit and illegal back-channels. "That includes a 20 percent increase in expenditures on our Premium Lights and a 30 percent increase on Blue Moon," they write. Football plays heavily in the increased spending. They say they are keeping A-B out of 89% of the available fantasy football inventory, and the NFL remains Coors Light's number one media investment in 2011 "with as much in-game support as in 2010 across all the major networks. New this year: The brand will have category exclusivity in the online streaming of NBC's Sunday night game - the only live-streamed NFL game." Coors Light is also the new title sponsor of the "College Football Saturday Preview Show" and the "College Football Saturday Scoreboard Show" on FSN. And it has category-exclusive presence on every SEC, Big 12, Pac-12, ACC, Big East and Conference USA game on the network, among other sponsorships for both CL and ML.


MILLERCOORS SUES PATRIOTS AFTER ALLEGEDLY RENEGING ON DEAL

In a sign of how important sports marketing has become and how valuable sponsorships have become, consider this story: MillerCoors struck an exclusive deal with the New England Patriots (after having a dual deal with them) to extend through 2019, only to have them take the deal to A-B, who apparently had a 45 day first right of refusal which was apparently not communicated to MillerCoors. MC is suing. MillerCoors cmo Andy England wrote to distributors: "We understand the 45-day window came and went, and that nothing that happened during the window should have had any effect on the deal the Patriots had reached with MillerCoors. However, several weeks later, the team informed us it would be pursuing an exclusive deal with ABI in lieu of the deal they had reached with us. Despite our attempts to avoid litigation through continued dialogue with the team, the Patriots have now made it clear that they refuse to honor our deal and intend to enter into an exclusive deal with ABI. Therefore, in an effort to enforce our right, we filed a lawsuit against the Patriots earlier today in Massachusetts State Court." Let the games begin.


HUSA HIRES SPIRITS EXEC FOR NEW INNOVATION ROLE

Turns out Nick Lake wasn't the only hire HUSA is making. Heineken USA created a new role, vice president, innovation to support efforts to expand its innovation capabilities, and has hired Monique Acevedo to fill the post. She and her innovation team will be "responsible for leveraging insights that are consistent with the organization's strategic vision to develop an innovation strategy as well as leading innovation planning and all related projects," said HUSA.

Monique joins Heineken USA from Diageo where she most recently served as director of innovation. In that role, she was responsible for leading the innovation strategy and business plan for a $50mm net sales value pipeline of highly differentiated new products from concept through to launch, including Crown Royal Black and Bulleit Rye Whiskey. Prior to her role at Diageo, Acevedo spent eight years at The Coca-Cola Company in various roles.


BREWERS ASSOCIATION: "ET TU, BRUTE?"

The Brewers Association's chief operating officer Bob Pease wasn't too pleased to read that we thought their tax bill was "dead", and wanted to pass along the BA's official response. In the interest of verisimilitude, we complied. Writes Bob:

"Harry, Now I know how Mark Twain felt when he read his own obituary. As the BA staffer working most closely on H.R. 1236/S.534, I am happy to report that, contrary to BBD's conclusion, our bill is very much alive and moving forward in Washington. In fact, thanks to the good efforts of hundreds of Brewers Association members, we have secured more broad bi-partisan support for our bill than almost any piece of legislation currently under consideration on Capitol Hill. In the House we have 71 Democrats, 53 Republicans and 20 members of the House Ways & Means Committee supporting our effort. In the Senate, we have 21 Democrats, 15 Republicans and 10 members of the Senate Finance Committee."

BEER BRIEFS:

CORRECTION: We misidentified Schlafly's Dan Kopman as a BA Board Member. He's not currently a member of the board.

YOUR EDITOR will be presenting a seminar called "Behind the Headlines" at the NBWA Convention next month in Las Vegas on Tuesday, Oct. 18 at the ungodly hour of 7:30am. Come see me say the things I can't write in BBD.

Until tomorrow, Harry

"Logic will get you from A to B. Imagination will take you everywhere."
-- Albert Einstein

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