September 6, 2007 2:54 pm

Budejovicky Budvar: Anheuser-Busch most likely bidder, followed by Heineken; InBev unlikely to pay high multiples - analysis

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Anheuser-Busch is the most likely buyer for state-owned Czech brewer, Budejovicky Budvar, if the latter is privatised, according to two sector bankers.

Heineken of the Netherlands is also likely to make an offer for Budejovicky Budvar, both bankers said, but would probably not accept the same high multiples as A-B would on a deal.

Assuming the company has approximately EUR 120m in revenues and a net income of 8-10%, the first banker estimated Budvar’s price would be in the area of EUR 400m. The second banker estimated that the brewer would sell for 10-15 times EBITDA.

Trademark issues surrounding the Budweiser name, the first banker said, constitute grounds for A-B to pay a premium for the Èeské Budìjovice-based company. A-B, he said, would resolve the issue and save the company some USD 25m in legal costs per year: “more than the net income of [Budejovicky Budvar].”

Budvar could be an attractive target for Heineken too, the first banker said, as the Dutch brewer seeks to expand its presence in Eastern Europe. “For them, it would move the needle, they are small in the Czech Republic [and such a purchase] would get them closer to InBev,” he said. The second banker agreed saying that it would be an additional ”jig-saw piece” in the Heineken puzzle.

The Budweiser brand, representing some 7% of the Czech market, could serve as a bridgehead for further, organic expansion, the first banker said. The brand has global export potential, the second banker added. Eventual complications surrounding the Budweiser name, the first banker noted, would not deter the Amsterdam-based brewer.

Both bankers said InBev, the listed Belgian brewer, is unlikely to make an offer for Budvar. InBev, the first banker said, would certainly be interested in acquiring Budvar, but only “on reasonable terms” rather than the multiples offered by the Czech government. InBev’s current management, he added, is prudent. This point was reiterated by the second banker, who emphasised that Brazilian CEO Carlos Brito and CFO Felipe Dutra have broken with the company’s tradition of paying high multiples for acquisitions.

Asked about a purchase of Budvar at InBev’s Q2 results press conference, Dutra said the company is focused on organic expansion in the region. Brito declined to comment on reports linking InBev to Budvar.

The first banker also emphasised Budvar’s small size relative to InBev. InBev, he said “is a 40m hectolitre company” with “many things on their plate.” Budvar, with production volumes of around 1m hectolitres, is “a nice company, but rather small.” For “the biggest brewer in the world,” Budvar “would not add so much,” he argued. InBev, he added, “have the best beer in their portfolio, so they don’t need [Budvar].” Furthermore, InBev has been growing strongly in Central and Eastern Europe in its own right.

Both bankers also ruled out SABMiller as a bidder. The UK listed brewer’s dominance in the Czech market, they said, would make a takeover troublesome for the regulatory authorities

A company source at Budvar declined to comment on potential bidders. The company source did confirm earlier reports that the firm is being converted into a joint-stock company. The ministry of agriculture, the company source said, has selected a financial and a legal advisor and is now looking for a Czech auditor. The company source emphasised that the ministry of agriculture, not Budvar, is overseeing the privatisation process. In another two months, the company source said, more would be known.

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