AB InBev – Asahi deal M&A activity rebounds for the Alcohol Industry

Anheuser-Busch InBev NV has accepted Asahi Group Holdings Ltd.’s offer to buy the Peroni, Grolsch and Meantime beer brands for 2.55bn euros ($2.9bn).

The AB InBev-SABMiller merger would create the world’s biggest beer group with about 30% of the global beer market.

Drivers of the deal

Asahi’s offer to buy the Peroni, Grolsch and Meantine is a step forward into AB InBev’s efforts to win regulatory approval in order to acquire SABMiller. Since European regulators are sceptical about the creation of this beer mega-brand, InBev and SabMiller have kept on selling part of their assets in Europe. This string of divestitures was indeed necessary to meet the necessary requirements and to avoid any antitrust law enforcement. AB InBev has also agreed to sell to Asahi their related businesses in Italy, the Netherlands and the UK.

Asahi is Japan’s biggest brewer (38% of its home market), well known abroad for a beer brand called Super Dry. The Tokyo based brewery’s sales have stagnated in the last years due to the current beer slump in Japan. Beer drinking has declined since 2001, partly due to the shrinking population but mostly due to more people shifting focus and turning to alternatives such as whiskey and wine. This deal would enable Asahi to widen their international footprint, by giving the brewer a foothold in Europe. The acquisition would allow Asahi to expand in Southeast Asia and Australia, where customers enjoy the high quality of European beers.

The Asahi deal is one of the largest overseas takeovers in the Japanese beer market, where companies have been looking for opportunities abroad to counter a shrinking market at home. It would be Asahi’s first major European acquisition, and the cultural differences between Europe and Japan could pose challenges.

Transaction terms and structure

In recent months Ab InBev has reported that it had received an offer from Asahi for 2.55bn euros for a bundle of different beer brands including British Meantime. Asahi said that its offer for the SABMiller brands values their assets at about 14 times EBITDA.

The transaction will be carried out simultaneously with the acquisition of the South African SABMiller (which controlled the two Peroni brands and Grolsh) by AB InBev, a transaction announced last November that is worth 112bn euros. To receive approval from the antitrust authorities that aim at preventing excessive market domination by a single actor, AB InBev had already committed itself to transfer the two brands in early December. For the Tokyo – based group this operation triggers expansion in Europe with the intent of becoming a global player, especially as the market outlook in Japan is not rosy and rival Kirin and Suntory have already strengthened the revenues generated abroad.

If completed, the transaction would be the largest acquisition of Asahi and Japan’s biggest deal in the beverage industry so far. The buying spree of leading Japanese companies can be put down to the lower burden of interest expense that these companies have to bear, mainly due to the fact that the Bank of Japan adopted negative interest rates.

As shown in Figure 1, the Japanese company share price dropped by around 8% before the deal was announced the April 12 2016.

 Deutsche Bank and Lazard advised AB InBev, while Rothschild is working with Asahi.

Figure 1

Figure 1

Industry overview

The beer industry went through a decade of consolidation that saw the top five brewers increasing their share of global volumes from 38% to 52% between 2005 and 2014. Some notable transactions included InBev’s acquisition of Anheuser-Busch in 2008, Heineken’s buyout of Mexican FEMSA in 2010, SABMiller’s purchase of Australian Foster Group in 2011 and AB InBev deal with Grupo Modelo in 2013. The £68bn AB InBev’s acquisition of SABMiller will likely pose an end to this long period of industry consolidation creating the world’s leading brewer with an estimated market share of 28% of beer volumes.

The growth dynamics for the beer sector are changing, with global volumes expected to slightly increase over the 5-year period 2014-2019 to a 2% CAGR, compared to the 1% CAGR over the period 2009 – 2014. Although the demand in Western and Eastern Europe is expected to remain sluggish, Asia Pacific and Latin America will still be the engine for growth, even though their volumes will start to drop reflecting China’s current economic slowdown and Brazil’s difficulties. The only region that is predicted to see a significant surge in demand and consequently a considerable growth in terms of volumes is Middle-East and Africa. It is important to notice that the global growth is changing not only in geographic terms but also in category terms. In this respect, consumer taste is shifting towards flavoured lagers, stout and dark beer. The growing popularity of high quality and more flavoured “craft” beers perceived more and more by consumers as an “accessible luxury” was the main cause of the slowing growth rates experienced by North America and Western Europe. In fact, craft beer and imports are the only growing segments within a stagnant market. This trend is swiftly emerging across developing countries too, with China expected to be the main driver of global growth in these segments.

Sources and References: Bloomberg, Euromonitor International, Passport, Financial Times

To contact the authors:

Carmen Deza Perez   carmen.perez@studbocconi.it

Francesco Polga         francesco.polga@studbocconi.it

Giada Zhang                giada.zhang@studbocconi.it

Riccardo Zanasi          zanasi.riccardo@studbocconi.it

To contact the editor responsible for this story:

Fabrizio Colloca       fabrizio.colloca@studbocconi.it