US – Belgium based multinational drink and brewing company AB InBev has announced plans to sell a 49.9% stake in its U.S.-based metal container plants for about $3 billion to private-equity firm Apollo Global Management and other investors.
The global beer giant said the transaction will generate proceeds to repay debt while allowing it to retain operational control of its U.S.-based metal container plants.
Under the deal, AB InBev will have the right, but not the obligation, to reacquire the minority stake beginning on the fifth anniversary of the close of the transaction.
AB InBev has an enviable portfolio of beers, many of which it has added to the fold through a series of deals, including the 2016 takeover of SABMiller, an acquisition of Grupo Modelo in 2013 and the InBev purchase of St. Louis-based Anheuser-Busch in 2008.
But while the deals expanded its beer offerings and global presence, it saddled the company with billions of dollars in debt.
The company’s net debt surged to US$101.39 billion at the end of fiscal 2018 from US$36.26 billion at the end of 2015, according to The Wall Street Journal.
With too much leverage, the company is at risk of being hit if credit markets tighten. It also reduces how much money it has to reinvest back in its business.
AB InBev has attempted a series of moves in recent years to cut its debt. It tried to carry out a US$10 billion IPO of its Asia-Pacific subsidiary, but scrapped the deal due to unfavorable market conditions.
It sold its Australian subsidiary, Carlton & United Breweries, to Japan’s Asahi for $11 billion and it has cut its dividend at least twice in recent years prior to the pandemic.
To further save finances it said it would scrap its interim dividend in October because of uncertainty tied to the pandemic.
The financial decisions come as Americans — most notably younger consumers such as millennials and Gen Zers — are increasingly drinking less alcohol or skipping it altogether.
When they do, they’re more likely to turn to spirits, craft beers or ready-to-drink products like hard seltzer.
Beer volumes slipped 2.3% in 2019, its fourth straight year of declines, led by a 3.6% drop in domestic brews, IWSR said.
The challenges are further complicated by the ongoing pandemic that has increased costs for beer makers as people drink more at home while consumption plunges at bars, restaurants and sporting venues.
During its third quarter, AB InBev said its profit slumped US$471 million from the same period a year ago.
With a lot of headwinds facing AB InBev, the company is wise to look for ways to shore up its balance sheet and better position itself for changing consumer preferences and a world where consumers are going out more frequently again.
While the US$3 billion will help improve its finances, recent moves suggest AB InBev will continue to look for more ways to deleverage going forward.
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