A race for a dwindling number of brewing assets in high-growth emerging markets is spurring beer makers to take full control of joint ventures to keep them out of the hands of competitors.
So far this year, brewers have announced 45 acquisitions worth $35.6 billion, according to data compiled by Bloomberg, versus $27.8 billion in all of 2011. That included the second- largest beer deal in a decade when Anheuser-Busch InBev NV (ABI) said it would purchase the remaining share of Mexican partner Grupo Modelo SAB for $20.2 billion. This month, Heineken NV (HEIA) offered $6 billion to buy out other investors in Singapore-based Asia Pacific Breweries. And that may not be the end of the takeovers.
“Consolidation has now reached the point where there’s a limited number of assets that aren’t controlled by big brewers,” said Jonathan Fell, an analyst at Deutsche Bank AG in London. “Joint ventures and associates have to be one of the areas you’d expect beer companies to explore for acquisition.”
With sales slowing in developed economies, brewers are seeking to invest where there’s more room for gains. Beer volume in Asia and Latin America is set to increase at a compound annual rate of 6 percent from 2012 to 2016, investment bank Nomura estimates, compared with a 1 percent decline in Europe and no growth in North America.
“They’re chasing GDP and per-capita consumption growth,” said Terry Huffine, executive director at DC Advisory, who has worked on acquisitions such as SABMiller Plc (SAB)’s $1.1 billion purchase of minority interests in Poland’s Kompania Piwowarska.
SABMiller, the world’s second-biggest brewer by volume, behind Anheuser-Busch InBev, has the largest collection of joint-venture interests. Its assets include China Resources Snow Brewery Co., Anadolu Efes Biracilik & Malt Sanayii AS (AEFES) in Turkey, and the beer operation of France’s Groupe Castel, which brews in 20 African countries.
The Castel unit, of which SABMiller owns 20 percent, may fetch $12 billion to $14 billion in the event of a buyout, according to Deutsche Bank. SABMiller also owns half of MillerCoors LLC in the U.S., which Nomura analysts estimate has a value of about $8.9 billion.
“SAB’s made no secret of the fact they’d love to acquire Castel,” said Deutsche Bank analyst Fell. MillerCoors, though, “is at the bottom of the list” because it operates in the low- growth, if profitable, North American market.
SABMiller spokesman Richard Farnsworth declined to comment on specific assets, though he said the London-based company is “always on the lookout for new opportunities.”
Heineken and Danish brewer Carlsberg (CARLB) also have interests to protect in some of the world’s fastest-growing regions. Carlsberg owns about 30 percent of China’s Chongqing Brewery Co., (600132) while Heineken has 31 percent of Cia Cervecerias Unidas SA (CCU) in Chile and 37.5 percent of India’s United Breweries, controlled by billionaire Vijay Mallya.
The danger of failing to secure control over assets was illustrated this year when Heineken lost out to AB InBev over Cerveceria Nacional Dominicana of the Dominican Republic, the brewer of Presidente beer. Heineken held a 9.3 percent stake in the company, which AB InBev acquired for about $1.24 billion.
That experience may have played a part in Heineken’s offer for Asia Pacific Breweries after Thai Beverage Pcl (THBEV) threatened its control of the Singapore company, which sells the Dutch brewer’s brands in south-east Asia and China.
The high profits that beermakers enjoy may also be spurring them to make purchases. AB InBev, based in Leuven, Belgium, generated $12.5 billion from operations last year.
“There are very few interesting independent targets that are available, said Gerard Rijk, an analyst at ING Groep NV in Amsterdam. “So brewers’ cash is having to be used in share buybacks, increased dividends -- and buying out minorities and joint ventures.”
A scarcity of good emerging-market assets may be driving up prices. Heineken’s bid values APB at about 17 times last year’s earnings before interest, tax, depreciation and amortization, according to Bloomberg data. AB InBev’s offer for the remaining Modelo shares represents a multiple of about 16.2 times Ebitda, according to Melissa Earlam, an analyst at UBS AG. The average for similar deals since 1999 is 12.3 times, UBS estimated.
“The last assets available are expensive, but the funding is cheap right now,” said Rijk at ING. AB InBev sold bonds to finance its acquisition of Modelo at the lowest coupons on record for the maturities.
Still, it’s not just a seller’s market as smaller producers are likely to need the backing of a multinational brewer just as much as the global giants need regional partners. Andrew Holland, an analyst at Societe Generale in London, estimates that the Heineken brand accounts for about 30 percent of beer volume at Asia Pacific Breweries, and a higher share of profit. Withdrawing such a valuable beer from the APB joint venture would, he said, “decimate” APB’s profit.
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