AB INBEV: Rumours about interest in SABMiller

According to rumours on a Brazilian press website AB InBev might be interested in acquiring SABMiller (2217,5 GBp, -1,33%). Whereas we believe the geographical overlap between SABMiller is quite limited –and from an antitrust viewpoint probably only a problem in the US and possibly China – we think the timing is slightly odd. AB InBev is still in deleveraging mode from the Anheuser-Busch acquisition and net debt to EBITDA landed at 2.75x mid June 2011. Hence we would have expected that a next large acquisition for ABI would be more likely 1.5-2 years down the road (when also management’s bonus would be vested for deleveraging after the AB acquisition). The only reason we can think of why ABI may be moving now could be that ABI is not interested in Foster’s (SABMiller has agreed to make a A$ 11.5bn bid for Foster’s but this can be stepped away from with a A$ 99m break-up fee).

We made some calculations based on our forecasts for ABI’s 2011 EBITDA and net debt forecasts, SABMiller’s 2011 results (financial year that closed end March 2011) and an acquisition price representing a 30% premium over SABMiller’s share price prior to the rumour. Bottom line is that acquiring SABMiller would bring net debt/EBITDA at 5.4x which is quite high –However, if SABMiller’s reference shareholders Altria (26,95 USD, 1,70%) (27.1%) and Bevco (14.18%) accept ABI stock then net debt/EBITDA would decline to 4.0x which is just acceptable. This calculation does not take into account any divestments –it is clear that in order to gain antitrust approval for an SABMiller acquisition ABI would have to divest SABMiller’s 58% stake in the MillerCoors JV –if we simply use the percentage MillerCoors represent in operating profit (14%) and strip out a similar portion out of the company’s EBITDA and the acquisition price then the net debt/EBITDA multiple would decline to roughly 3.7x, which would not warrant a public capital increase. However, that would mean Altria and Bevco get a roughly 25% stake in the combination, which would put them even slightly ahead of the Belgian families.

Conclusion:
The SABMiller interest rumour surprises somewhat on the timing (we do not believe a combination of both companies is impossible but it seems too early given the ongoing deleveraging exercise at ABI). No change to our Accumulate rating and € 47 target price for now.