Monday, 20 January 2014

Anheuser-Busch InBev: going backwards to go forwards

I am sure that expensive MBA courses teach fledgling CEOs to always look forward and never to look back.  The choice of the world's leading brewer Anheuser Busch InBev to reacquire Oriental Brewery of South Korea, five years after selling the company to private equity is striking.

Back in 2009, the then InBev sold Oriental Brewery for US$1.8bn.  Today's price to reacquire it?  US$5.8bn.  That's corporate price inflation and a stronger stock market for you.  The price is equal to around x11 Oriental Brewery's expected ebitda for 2013.  That does not strike me as particularly cheap. 

Of course synergies will be apparent.  As the brief document released by Anheuser Busch InBev says this morning:

'The re-integration of OB into AB InBev’s global platform is expected to generate benefits from a variety of sources, including maximizing OB and AB InBev’s portfolios of leading beer brands to drive premium growth and realizing improved efficiencies from sharing best practices between OB and AB InBev. AB InBev’s global platform also offers opportunities to export OB brands more widely'

And the price tag for a company with a US$163bn market cap is relatively small.  It will push their deleveraging to sub x2 net debt:ebitda to 'after the end of 2014' but again, in the wider scheme of things, it is not that big a change. 

Do I think they overpaid?  Yes, even with any hoped for synergies I think they did.  Sometimes though selling a structurally sound asset at a time of financial stress - as was the case with InBev in 2009 - can gnaw at a management team.  They paid a pretty penny to buy Oriental Brewery back but as a piece of their global jigsaw it used to play an important role and the management team see a future one too. 

And the proof of the pudding may be that the share, in early Belgian trading today, is slightly up. 

A few months ago, after the last quarterly disclosure, I talked about waiting for a sub Euro70 print.  That remains the case.  Anheuser-Busch InBev remains at the centre of many interesting consumer markets, especially in the emerging markets but - just as with KKR's purchase and now sale of Oriental Brewery - it is always best to try to buy at a more depressed or uncertain time. 


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