SABMiller Makes Approach to Heineken, Gets Rebuffed

FILED SEPTEMBER 15, 2014

Dear Client:

In a bid to ward off what many see as an inevitable bid from AB InBev, SABMiller has approached the family owners of Heineken NV about an offer, as first reported on Sunday by Bloomberg, citing people with knowledge of the situation. Such a combination would make SABMillerHeineken the largest brewer in the world by volume. The FT went one further, claiming that "interest was thwarted before discussions - even of an informal nature - could begin, with Heineken making clear that it was not interested in considering a sale, according to people familiar with the matter."

SABMiller made the preliminary offer directly to the controlling family shareholders, including Freddy Heineken's daughter Charlene de Carvalho-Heineken and her gregarious husband: financier, former Olympic luger, former film actor, and current green pants wearer Michel de Carvalho.

REJECTION. That offer was rejected, even though it would have made the family one of the largest shareholders in the combined company. The reason for the rejected offer is a common refrain at Heineken over the decades: they don't want to lose control of the company.

HEINEKEN CONFIRMS. Heineken confirmed the approach by SABMiller in a statement late Sunday but said the proposal is "non-actionable". "The Heineken family has informed SABMiller, Heineken and Heineken Holding of its intention to preserve the heritage and identity of Heineken as an independent company," it said in a statement. "The Heineken family and Heineken's management are confident that the company will continue to deliver growth and shareholder value." It's not clear whether SABMiller will make another offer.

WHAT NOW? What is clear is that SABMiller is feeling the need to act to make itself more expensive before ABI makes a move . There would likely have to be quite a bit of rejiggering to get such a deal done, particularly in the US. Many questions would abound, chief among them: Would the DOJ allow MillerCoors to combine with Heineken USA? (Probably not). Would (or even could) SABMiller jettison the JV with Molson Coors in favor of a combination with Heineken USA? Would Michele continue to be allowed to address distributors at the yearly convention in green trousers? These would be important theme to be explored if such a deal were to come to fruition, but it appears at this point that they are not to be.

Such a deal would add $25 billion in revenues to SABMiller and make it a player in markets like Mexico where the brewer doesn't have much of a presence. If SABMiller can't cut a deal with Heineken, where else could it cast its gaze? Diageo? Carlsberg? Let's let the analysts give their take.

Redburn calls this a "twist in brewing consolidation" and points out that such a deal could create "antitrust issues in at least 30% of Heineken's markets by profit. Perhaps a defensive move, perhaps an attempt to force ABInBev's hand." Redburn "not surprised" Heineken rejected the deal and doesn't think the family would "give up control at any price right now, or indeed consider anything but the most transformational transaction."

Bernstein was "surprised but not shocked" by the news of the proposed deal. Bernstein thinks this deal may be dead for now: "Given the nature of this leak, and the current strong operational momentum at Heineken, we think it highly unlikely that the two sides will be sitting round a table any time soon."

Tony Bucalo at Santander believes SABMiller's approach to Heineken signals that SABMiller is serious about protecting itself against an ABI takeover. With "ABI stalled in the US and seeing real wear and tear to its business in Brazil, it appears that even SABMiller may have come to accept the inevitability of an ABI bid for its company, even with PepsiCo and Coca-Cola in the mix for possible acquisition by ABI as well," he writes. "We think this sends a strong signal to the market and to ABI that a take-out bid may not be welcome or more likely must come at a very heavy price."

BEER BRIEFS:

CHEAP KEGS. LAST WEEK we referenced Bud half barrels at $72. News now comes to us from Denver where we're hearing that for the past six weeks all A-B half barrels are half off. For example Bud and Bud Light kegs are going for $47 PTR, Stella Artois at $64.50. It was supposed to end in August but the word on the street is it is being extended to the end of the year.

PIPING ALL HANDS. We are preparing a special "distributor best practices" issue of BBD in the next few weeks and are asking our readers to send in cost-saving or revenue-enhancing ideas from their own operations (examples: LED lighting, solar, freon enhancement, CNG, etc.) Ping me at hs@beernet.com

Until tomorrow, Harry

"I generally avoid temptation unless I can't resist it."
-Mae West

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