Foster’s this week became the latest brewer to be gulped down by a bigger rival when London-listed SABMiller paid A$10.8bn for the Australian group’s equity.
Brewers are big proponents of consolidation, despite the more limited cost synergies than in other industries. Beer being a local business, it is tougher to implement global distribution and marketing. As heavy, bulky stuff, production of beer inevitably stays close to consumers.
Despite this, the industry has spent around $150bn on acquisitions in the past five years, led by Anheuser-Busch InBev, the biggest fish in the sea – and, according to some analysts, just waiting to swallow SABMiller.
But the world’s second-biggest brewer by volumes becomes that bit more of a stretch following the takeover of Foster’s, which remains subject to regulatory approvals.
The deal is priced at an enterprise value of $11.5bn on SABMiller’s calculations. Foster’s calculation, including other payments such as a windfall refund payment that will be distributed to shareholders, totals $12.3bn. Either way, it was not cheap.
Trevor Stirling, at Bernstein Research says it works out at a “pretty pricey” 13.2 times last year’s earnings before tax, depreciation and amortisation on SABMiller’s enterprise value – ahead of similar deals.
Analysts have two cavils with the deal. It is harder to improve Foster’s already world-beating operating profit margins and the deal dilutes SABMiller’s 80 per cent-plus exposure to fast-growing emerging markets.
Graham Mackay, chief executive, points out the group will still derive some 70 per cent of sales from emerging markets. On profitability, the brewer can and will do what needs to be done “to make the numbers work,” he says.
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