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AB InBev seeks Plan B after investors bail on Asian IPO

The company now finds itself in a bind.
Cases of beer bottles move along conveyor belts at the Anheuser-Busch InBev Budweiser bottling facility in St Louis, Missouri, US. Picture: Luke Sharrett/Bloomberg

Anheuser-Busch InBev NV shares fell after the demise of a blockbuster initial public offering of the brewer’s Asian business, leaving the company in a bind.

After reversing course on Friday over plans to sell a stake in the unit to raise as much as $9.8 billion, the Budweiser owner needs to find a new way to reduce its $100 billion-plus debt pile and mollify shareholders, while reinvigorating a business that’s lost its fizz and keeping credit-rating agencies at bay. Standard & Poor’s has a negative outlook on AB InBev’s debt, which it ranks A-, the fourth lowest investment grade.

Read: AB InBev says it isn’t pursuing Budweiser Asia pacific IPO

“Any missteps in debt reduction due to reduced profitability could lead to further downgrades,” Bloomberg Intelligence analysts Hoai Ngo and Madeleine Hart wrote in a note.

After the planned Hong Kong sale was pulled, the shares fell as much as 2.8% in Brussels early on Monday.

Here are a few options the company could pursue next.

Cut costs

AB InBev was built over three decades via acquisitions, followed by cost cuts, as scores of beer brands around the globe were brought under the same roof. By eliminating overlapping functions it has become the most profitable major brewer in the world, with operating margins more than double those of its nearest rival, Heineken.

The downside of further operational efficiencies is that AB InBev has been trying to show a friendlier face since the financial meltdown at Kraft Heinz, a company that shares board members with the brewer. Investors might wonder about the pace of growth if AB InBev takes a knife to marketing and other outlays in a bid to cut its debt, while refraining from acquisitions.

“What the cancellation of the IPO means is that probably it will take modestly longer for ABI to expand in the three countries it wants to grow in — the Philippines, Thailand and Vietnam,” said Nico von Stackelberg, an analyst at Liberum, though he added that “it’s only a matter of time before they get there.”

Revisit an IPO

The company could sit tight for a while and then return at a later date and launch a new listing campaign.

The downside is that potential investors now have the upper hand, given that the company has tried once and failed to find enough buyers. That could make pricing tough the second time around.

The company may also explore selling a minority stake in the Asian business, Budweiser Brewing Company APAC, though there is no immediate plan for a deal, people familiar with the matter said.

Sell assets

AB InBev’s dealmaking culminated in the “megabrew” combination with SABMiller three years ago. To secure antitrust approval, the company had to sell a number of assets, including Peroni, Grolsch and Pilsner Urquell in Europe and its stake in MillerCoors in the US

The company still owns more than 60 beers worldwide, ranging from household names like Budweiser, Corona and Stella Artois to local labels like Boxing Cat in China and Brahma in Brazil. As Japan’s Asahi Group expands its presence in Europe and Heineken and Carlsberg A/S push further into Asia, more brands could change hands.

The downside is that AB InBev’s business is built on scale and back-office efficiencies. Paring back could undermine that model. And few beer brands fetch top dollar these days, limiting the appeal of any sales.

Cut the dividend again

AB InBev could seek to reduce payouts to investors as it prioritises the management of its debt load over maintaining its reputation as one of the most shareholder-friendly companies in the consumer-goods industry.

The brewer has the cash, and there’s a precedent, after AB InBev cut its dividend by half in October, earmarking the $4 billion saved to pay down its loans.

The downside is that last year’s move prompted an 11% plunge in the share price, destroying $18 billion in market value. It was intended to be a painful one-time exercise — not the first in a series.

© 2019 Bloomberg L.P

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