It’s Miller time in South America

BOGOTA/LONDON – SABMiller Plc is buying South America’s second-biggest brewer Bavaria SA for US$4,8 billion (N$31,68) to tap fast-growing beer markets and take on regional leader InBev.

SABMiller said yesterday the stock and cash deal, which boosted its shares over seven per cent to a new high, is worth US$7,8 billion including debt and minority interests in subsidiary companies, and will lift it above Anheuser-Busch to become the world’s second-biggest brewer by volume. “It’s a strategically sound deal, they’ve paid a sensible price and it’s a good opportunity for them,” said John Smith, investor director at Brown Shipley.The world’s top beer makers have been scrambling to buy brewers in emerging markets to offset slower growth in developing countries and take advantage of economies of scale.Belgium’s Interbrew bought Brazil’s Ambev last year to become South America’s, and the world’s, biggest brewer.SABMiller said it was buying a 71,8 per cent stake in Colombia-based Bavaria from the Santo Domingo family by issuing 225 million shares worth about US$3,46 billion.This will give the family a 15,1 per cent stake in the combined group.The Anglo-South African group will buy out minority investors at US$19,48 a share for US$1,36 billion cash, below Bavaria’s closing price of 49 100 pesos, though the stock has almost doubled in value this year on bid speculation.Its total cash outlay will be US$2,1 billion as it will also buy minority interests in Bavaria subsidiaries.These interests are worth US$1,04 billion, but SABMiller only plans to buy out minorities with voting rights, worth about US$700 million.SABMiller will also take on Bavaria’s US$1,94 billion of debt.The deal values Bavaria at around 10 times earnings before interest, tax, deprecation and amortisation (EBITDA), below the 11-13 times paid by Interbrew for Ambev, according to a SABMiller spokesman.”Paying US$4,8 billion for the equity of such a highly profitable and rapidly growing company as Bavaria must represent one of the best deals in the brewing industry that we have seen for a long time,” Exane BNP Paribas analysts wrote in a note.Bavaria, which makes Aguila, Cristal and Pilsner beers and dominates beer markets in Colombia, Peru, Ecuador and Panama, represented the last opportunity for an international brewer to gain large-scale access to Latin America.The world’s four top brewers all looked at buying Bavaria, but SABMiller was tipped to win.Analysts said the deal was too soon for InBev after its founding merger, Anheuser-Busch would not want a major new investor and Dutch group Heineken would struggle to match SABMiller on price.SABMiller Chief Executive Graham Mackay said Bavaria’s four major markets offered strong growth prospects.”With GDP (gross domestic product) growth of almost four per cent and a young population demographic, the region is positioned to generate sustained, above-average beer consumption growth,” he told reporters on a conference call.SABMiller, which brews Miller, Castle and Peroni beers, said the combined group would have annual beer volumes of about 175 million hectolitres and pro forma aggregated net revenues of about US$12,5 billion.The firm said it expected annual cost savings and operating improvements to reach US$120 million by March 2010 and for the deal to boost earnings, before cost and revenues synergies, for the pro forma financial year ending March 2006.Net debt will rise to about US$6,2 billion from US$2,2 billion.The Santo Domingo family is selling three per cent of its stake in Bavaria for cash, worth about US$180 million, and has agreed not to sell its holding in the combined group for five years.The family will be SABMiller’s second biggest shareholder, behind Altria, which holds 25 per cent after selling Miller to South African Breweries in 2002.Merrill Lynch and JP Morgan Cazenove advised SABMiller on the deal.Lehman Brothers, Morgan Stanley and Citigroup acted for the Santo Domingo family.-Nampa-Reuters”It’s a strategically sound deal, they’ve paid a sensible price and it’s a good opportunity for them,” said John Smith, investor director at Brown Shipley.The world’s top beer makers have been scrambling to buy brewers in emerging markets to offset slower growth in developing countries and take advantage of economies of scale.Belgium’s Interbrew bought Brazil’s Ambev last year to become South America’s, and the world’s, biggest brewer.SABMiller said it was buying a 71,8 per cent stake in Colombia-based Bavaria from the Santo Domingo family by issuing 225 million shares worth about US$3,46 billion.This will give the family a 15,1 per cent stake in the combined group.The Anglo-South African group will buy out minority investors at US$19,48 a share for US$1,36 billion cash, below Bavaria’s closing price of 49 100 pesos, though the stock has almost doubled in value this year on bid speculation.Its total cash outlay will be US$2,1 billion as it will also buy minority interests in Bavaria subsidiaries.These interests are worth US$1,04 billion, but SABMiller only plans to buy out minorities with voting rights, worth about US$700 million.SABMiller will also take on Bavaria’s US$1,94 billion of debt.The deal values Bavaria at around 10 times earnings before interest, tax, deprecation and amortisation (EBITDA), below the 11-13 times paid by Interbrew for Ambev, according to a SABMiller spokesman.”Paying US$4,8 billion for the equity of such a highly profitable and rapidly growing company as Bavaria must represent one of the best deals in the brewing industry that we have seen for a long time,” Exane BNP Paribas analysts wrote in a note.Bavaria, which makes Aguila, Cristal and Pilsner beers and dominates beer markets in Colombia, Peru, Ecuador and Panama, represented the last opportunity for an international brewer to gain large-scale access to Latin America.The world’s four top brewers all looked at buying Bavaria, but SABMiller was tipped to win.Analysts said the deal was too soon for InBev after its founding merger, Anheuser-Busch would not want a major new investor and Dutch group Heineken would struggle to match SABMiller on price.SABMiller Chief Executive Graham Mackay said Bavaria’s four major markets offered strong growth prospects.”With GDP (gross domestic product) growth of almost four per cent and a young population demographic, the region is positioned to generate sustained, above-average beer consumption growth,” he told reporters on a conference call.SABMiller, which brews Miller, Castle and Peroni beers, said the combined group would have annual beer volumes of about 175 million hectolitres and pro forma aggregated net revenues of about US$12,5 billion.The firm said it expected annual cost savings and operating improvements to reach US$120 million by March 2010 and for the deal to boost earnings, before cost and revenues synergies, for the pro forma financial year ending March 2006.Net debt will rise to about US$6,2 billion from US$2,2 billion.The Santo Domingo family is selling three per cent of its stake in Bavaria for cash, worth about US$180 million, and has agreed not to sell its holding in the combined group for five years.The family will be SABMiller’s second biggest shareholder, behind Altria, which holds 25 per cent after selling Miller to South African Breweries in 2002.Merrill Lynch and JP Morgan Cazenove advised SABMiller on the deal.Lehman Brothers, Morgan Stanley and Citigroup acted for the Santo Domingo family.-Nampa-Reuters