Tuesday’s news that the group had managed to sell off the remainder of SABMiller’s European assets to Japan’s Asahi Group for $7.8bn was welcome in the face of an otherwise tough outlook for AB InBev.
The price tag was $2bn above the more optimistic of analysts’ expectations.
The assets acquired by Asahi include Czech brand Pilsner Urquell, which was taken over by SABMiller in the early days of its European expansion.
In addition, several powerful brands in Poland, Slovakia, Romania and Hungary were in the collection sold to the Japanese group.
The latest transaction means that Asahi has acquired all of SABMiller’s European operations. Earlier in 2016, it paid $2.7bn for Peroni, Grolsch and craft brewer Meantime. The Tokyo-based brewer said the deal was designed to position its overseas business as a growth engine for a global player.
AB InBev was keen to sell the European assets to ward off potential competition concerns, but also because it was not bullish about growth prospects in the region.
The speed at which it put the assets up for sale confirmed the view that it had paid top dollar to get SABMiller’s emerging market assets and had little interest in its other brands stretched across the globe.
The decision to sell off all the European assets sparked debate among analysts, with some saying it was unnecessary from a regulatory perspective and it deprived AB InBev of some of the benefits of the expected recovery in the European beer market. Unlike AB InBev, Asahi is looking to Europe for growth to counter the weak conditions and outlook in its home market.
The stronger than expected price is good news for AB InBev shareholders but it is unlikely to have much of an effect on the weaker trend in the share price.
While some of the 27% fall in the share price since its listing in January can be attributed to the relatively stronger rand — AB InBev was listed in the depths of the post-Nenegate currency depression — in dollar terms the share price is down about 15% on the year.
After a volatile to weak stretch between January and the end of September, the share price weakened considerably in October ahead of its quarterly financial results, which came in worse than expected.
Disappointing figures from its big Brazilian market, where volumes were down 4.1%, and a continued flat performance in the US combined to produce the group’s weakest quarterly figures in years.
The results underpinned the belief that AB InBev needed SABMiller’s emerging market operations to generate some growth in volumes.
In the short to medium term, analysts are looking to the beer behemoth to produce earnings growth from cost savings in the merged entity.
In the longer term, there are growing concerns that even a revival of the global economy might not be sufficient to return the industry to the sort of growth rates enjoyed years ago. The industry reached a production peak in 2013 and has been in decline since.
For AB InBev, acquisitions and cost-cutting may provide some cushioning in the short term. However, a more determined commitment to investing in market growth may be needed to support long-term earnings growth.
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