Another Sale To The Asahi Group As A Consequence Of The AB Inbev-SABMiller Merger

| About: Anheuser-Busch InBev (BUD)

Summary

The combination now has brought together the world’s top two brewers, accounting for approximately 30% of the global beer volumes.

After the much talked about sales in the U.S. and China, the brewer has now agreed to sell a group of SABMiller’s Central and Eastern European brands for around $7.8 billion to the Japanese beer giant Asahi Group.

The SABMiller combination was always going to be about the growth prospects in emerging markets, especially Africa, where AB InBev has no meaningful presence.

Anheuser-Busch Inbev (NYSE:BUD) completed its merger with SABMiller (OTCPK:SBMRY) in October, more than a year after AB InBev made its initial offer to acquire the latter. The combination now has brought together the world's top two brewers, accounting for approximately 30% of the global beer volumes. But how did a deal of such magnitude, where AB InBev acquired SABMiller for over $100 billion, come to its completion despite major antitrust concerns?

This was possible because of the various divestitures and sales of brands made by AB InBev to appease antitrust authorities in various countries. After the much talked about sales in the U.S. and China, the brewer has now agreed to sell a group of SABMiller's Central and Eastern European brands for around $7.8 billion to the Japanese beer giant Asahi Group (OTCPK:ASBRF). The target business is spread across 5 countries - Czech Republic, Hungary, Poland, Romania and Slovakia, including the Pilsner Urquell, Kozel, Tyskie, Lech and other brands. This deal follows the deal between Asahi and AB InBev earlier this year wherein the former agreed to buy certain of SABMiller's premium European brands including the Peroni and Grolsch brands, and related businesses for ~$2.9 billion.

The high price tag of $7.8 billion has not gone down very well with some Asahi investors, seeing how the company's shares fell almost 5% in Tokyo after the Nikkei newspaper reported the price an hour before the market closed. Earlier, the price tag for the Central and Eastern European businesses was estimated at around $5 billion, but Asahi had to spend a much higher amount in order to beat the other bidders, which included private-equity firm Bain Capital and Swiss investment firm Jacobs Holding AG. In fact, the $7.8 billion deal is the second-largest on record by a Japanese company in the food and beverage industry after Suntory Holdings Ltd.'s acquisition of Beam Inc., an American manufacturer of spirits, for $16 billion in 2014.

Despite the high price tag, the Asahi Group seems upbeat about this acquisition, especially as it has been suffering slow sales in its domestic market, Japan. The demographic shifts in the country, including an aging population and declining birth rate, caused a 1% decline in beer volumes in the country last year, and the beer volume is expected to continue to decline at a CAGR of 1% through the next five years. Asahi is the leading brewer in Japan, with a volume share of 36% in 2015. However it has also seen a decline in sales, especially in its flagship brand Asahi Super Dry, whose sales fell ~4% in the first 11 months of this year.

This acquisition could help grow Asahi's own beer portfolio and establish it as a global player, especially with brands such as Pilsner Urquell, the leader in beer in the Czech Republic, which according to Asahi, has the highest per-capita intake of beer in the world.

As far as AB InBev is concerned, this deal follows the company's apparent plans to appease antitrust authorities. The SABMiller combination was always going to be about the growth prospects in emerging markets, especially Africa, where AB InBev has no meaningful presence.

Disclosure: No positions.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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