LONDON -- An Anheuser-Busch InBev NV takeover of SABMiller PLC has been rumored for so long that people might be tempted to take its merits at face value, but several analysts think the drawbacks and obstacles in such a deal outweigh any advantages, the Wall Street Journal reported.
Buying SABMiller, which has operations in 80 countries, is a considerably riskier deal than AB InBev’s leadership has attempted before—with either its 2008 acquisition of Anheuser-Busch or its 2013 deal to buy Mexican brewing giant Grupo Modelo SAB.
One issue is price. AB InBev’s courtship of its smaller rival was confirmed Sept. 16, when SABMiller was forced to put out a statement by the U.K.’s takeover regulator after its shares moved on media speculation. The publicity could make it harder for AB InBev’s management to “maintain financial discipline,” RBC analyst James Edwardes Jones told the newspaper. Above an offer price for SABMiller of $63.62 a share, or about $103 billion, “any acquisition would move into the realms of value destruction,” he said.
The payoffs likely wouldn’t come quickly, either. If AB InBev were to buy SABMiller for the price noted above, it would take seven years for the return of capital from the deal to exceed SABMiller’s underlying cost of capital, said Bernstein analyst Trevor Stirling, as cited by WSJ.
Another issue is how the deal would be structured, given that SABMiller’s largest shareholders, Altria Group Inc. and the Santo Domingo family of Colombia, would prefer shares over cash for taxation purposes.
“We are not convinced that the potential acquisition of SABMiller would work culturally or strategically,” said Edwardes Jones, who downgraded AB InBev’s shares following the announcement about a possible takeover of SABMiller and cut his price target on the stock.
SABMiller’s dominant position in Africa—where it operates on its own or through partnership in 37 countries—was widely seen as a key driver of AB InBev’s interest in the company, but some analysts posit that operating on the continent would present a raft of challenges for AB InBev.
SABMiller and AB InBev declined to comment.
While SABMiller doesn’t mind taking a back seat on certain businesses, AB InBev likes to stay in control. Roughly 30% of SABMiller’s earnings last year came from entities it doesn’t control, but AB InBev’s share of such income was just 0.1%, illustrating a distinctly different attitude toward how to make profit.
With SABMiller’s and AB InBev’s respective roles as bottlers for Coca-Cola Co. and PepsiCo Inc. there is a chance that one of those lucrative relationships might have to be jettisoned given the rivalry between the soft-drink makers.
“In a transformational deal, you would expect some sort of give-and-take on the overall strategy, but this would be more than a give-and-take, it would be a fundamental overhaul,” Edwardes Jones said.
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