* Modelo deal unlikely to satisfy AB InBev's desire for more
* Big deal targets starting to dry up for global brewers
* Castel, Petropolis might come up for sale
By David Jones
LONDON, June 29 Big brewing deals are still very
much on the agenda, even after Anheuser-Busch InBev
buys out Mexican brewer Grupo Modelo for $20.1
The world's largest brewer may well be back on the
acquisition trail in a couple of years, bankers and analysts
say, with its biggest rival SABMiller likely in its
sights. Meanwhile some family owners of the few remaining bid
targets may be tempted to cash in their scarcity value with
The world's four biggest brewers AB InBev, SABMiller,
Heineken and Carlsberg already control half the
global beer market. AB InBev is controlled by Belgian founding
families and big Brazilian investors, while Heineken is family
controlled and Carlsberg half-owned by a charity.
Analysts say Heineken and Carlsberg, the smaller of the
four, are determined to stay independent so are unlikely to get
involved in big industry consolidation.
The scarcity of available brewing assets which forced AB
InBev to pay a high price for Modelo, may now also raise the
value of others that could come up for sale such as family owned
Africa's Castel and Brazil's Petropolis.
Analysts calculate that AB InBev, which makes Budweiser and
Beck's, paid around 15.4 times core EBITDA profits for Modelo in
a deal agreed on Friday, higher than the 11.5 times Heineken
paid for Mexico's second-biggest brewer FEMSA Cerveza
in 2010 as remaining deals get more pricey
"As the global beer market consolidates, and family
shareholders controlling the last remaining attractive assets
are less willing to sell, multiples will likely be driven up,"
said analyst Melissa Earlam at broker UBS.
Analysts say it is difficult to gauge when or if Castel and
Petropolis, which brews Itaipava, come onto the market, and
doubt whether family owned Spanish groups like Mahou and Damm
are likely to be sold, even though they are based in a
crisis-hit domestic economy.
SABMiller has a cross-shareholding with Castel and has said
it would be keen to buy its African brewing operations in a deal
worth around $10 billion that would give the combined group
nearly 60 percent of the fast-growing market. Analysts say there
is no indication that Castel may be up for sale.
Petropolis is Brazil's second-largest brewer with a 11
percent market share trailing AB InBev's 70 percent, and after
Kirin bought No 3 player Schincariol many analysts see
Heineken, which owns No 4 brewer Kaiser, as the favourite for a
possible $3.4 billion deal if Petropolis becomes available.
AB InBev could be attracted by SABMiller's open share
register and generally good geographic fit as it seeks global
beer growth spots, even if a $80 billion possible price tag
seems a little heady, analysts say.
AB InBev's strength in America would be complemented by
SABMiller's big presence in Africa, eastern Europe and
Analysts estimate African beer volumes rose around 7 percent
in 2011, but stripping out the mature South African market,
which accounts for over a quarter of the continent's beer, then
growth was well over 10 percent.
"The strategic logic behind this mega deal is unchanged, the
geographic overlap is limited and the savings on costs and
procurement are big. A Modelo deal only delays a move," said one
investment banker with knowledge of the brewing sector.
AB InBev says it expects to be below its targeted net debt
to EBITDA core profit ratio of 2 times during 2014. Before the
Modelo deal, it had seen this ratio down at 2 times this year
after being at 2.26 times at the end of 2011.
The brewer took on hefty debts with its acquisition in 2008
of Anheuser-Busch but asset sales, cost savings and strong free
cash flow brought this down quickly.
Although analysts say AB InBev paid a high price of $20.1
billion for the half share in Modelo it did not already own, the
brewer also unveiled higher than expected annual cost savings of
at least $600 million.
A potential AB InBev-SABMiller tie up would need disposals
in the U.S. and China to get around anti-trust issues, but
analysts believe this would be worth it to win possible annual
cost savings which could top $1 billion.