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AB InBev bounces back with Asahi deal and talk of new IPO

AB InBev sells its Australian beer assets to Asahi in a deal valued at A$16bn.

Anheuser-Busch InBev bounced back quickly from the failed initial public offering of its Asian unit, selling Australian beer assets in a deal valued at A$16 billion ($11.3 billion) and keeping alive the prospect of a share sale.

The disposal of Foster’s and other brands to Asahi less than a week after the IPO was pulled shows that the world’s largest brewer means business about cutting its $100 billion-plus debt pile. AB InBev shares rose as much as 5.6%, the steepest gain in almost five months. The bonds also climbed.

Asahi plans to finance the deal with an offering of as much as 200 billion yen ($1.9 billion) worth of shares. The company said it also plans to issue subordinated bonds and seek a 1.2 trillion-yen bridge loan.

By selling the Carlton & United unit, AB InBev removes a slow-growing part of its Asia-Pacific empire, potentially making any future IPO more attractive to investors who balked at the previous deal’s valuation. The company had aimed to raise as much as $9.8 billion in what would have been the year’s biggest initial offering.

The IPO reversal, followed by the quick sale to Asahi, follows AB InBev Chief Executive Officer Carlos Brito’s previous playbook. Throughout his tenure — including the $106 billion purchase of rival SABMiller that cemented the brewer’s global dominance — he has often met initial resistance to his dealmaking plans before achieving his main goals in the end.

The so-called megabrew deal also saddled AB InBev with mammoth borrowings, which prompted the company to slash its dividend last year and to plan the aborted IPO. Standard & Poor’s has a negative outlook on the debt — ranked A-, the fourth-lowest investment grade — and analysts have raised the possibility of further disposals.

Balance sheet

“While the stretched balance sheet appears to be leading to asset sales, we think the group is worth a lot more than is currently implied by the shares, especially as the company delevers,” wrote Nico von Stackelberg, an analyst at Liberum.

AB InBev’s shares have risen 44% this year. Its 3 billion-euro ($3.4 billion) 2028 note added 0.3 cents to 112 cents on Friday, lifting it to the highest since September 2016, based on data compiled by Bloomberg.

When acquiring SABMiller in 2016, a deal that gave the Belgian company control over one-third of the world’s beer, AB InBev submitted five incremental offers until shareholders finally agreed to a takeover. AB InBev then quickly moved to sell prized brands in Europe and China to satisfy antitrust concerns, which focused the business more on the emerging world.

AB InBev signalled Friday that it could return with a plan to sell Budweiser Brewing Co. APAC. Potential investors will seek a more appealing valuation, after the former price range valued the unit at 28.5 times to 33.5 times consensus 2020 earnings, above the ratios for both Heineken NV and Carlsberg A/S.

SABMiller deal

The Belgian company acquired Carlton & United through the purchase of SABMiller. The Budweiser maker still has a major presence in Asia, particularly in China, though it’s facing challenges there amid shifting trends. Younger consumers are moving away from traditional beers toward higher-priced craft brews and cocktails, while competition is spiking after rival Heineken forged a blockbuster deal with a state-owned company.

Carlton & United, whose brands also include Victoria Bitter, accounts for almost half the beer market in Australia. While Foster’s is well known internationally as an Australian brew, it’s much less commonly consumed domestically than abroad. Heineken makes it in Europe under license.

What Bloomberg Intelligence says

“Selling Carlton & United Breweries to Asahi for about $11.3 billion sheds a low-growth, high-margin asset, and allows for reinvestment into better growth markets.” – Duncan Fox, consumer products analyst

Asahi has rapidly expanded overseas in recent years, trying to build its flagship Super Dry into a global premium brand alongside the likes of Heineken as the domestic beer market languishes.

The deal will give the Japanese brewer a major boost in Australia. It is already the company’s second-largest overseas market behind Europe, but its presence has been overshadowed by Carlton & United and Kirin Holdings Co.’s Lion, which combined account for a 90% share, according to research firm IBISWorld.

Lazard and Freshfields advised AB InBev on the Carlton & United sale. Rothschild & Co. advised Asahi.

© 2019 Bloomberg L.P.

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