SOUTH AFRICA – SABMiller’s value on the JSE ballooned by R94bn to R1.08-trillion on Monday after reports suggested it was likely to be at the centre of any mooted consolidation among the world’s biggest brewers.

SABMiller’s shares rallied in delayed morning trade after Heineken confirmed on Sunday that it had rejected a takeover proposal by SABMiller. The stock received a further lift after a separate report said Anheuser-Busch InBev (AB InBev) was gearing up to buy SABMiller.

AB InBev is the world’s biggest brewer beer by market capitalisation and volumes brewed, followed by SABMiller, Heineken and Carlsberg.

After news of the Heineken bid, the Wall Street Journal on Monday cited a source saying AB InBev was talking to banks about financing what could be a R1.3-trillion deal to buy SABMiller. SABMiller’s shares jumped almost 13% before closing 9.66% up at R668.91 on Monday — giving the company its highest market capitalisation yet, of R1.08-trillion.

The renewed and heightened speculation that consolidation in the sector is on the cards fuelled shares in the world’s biggest brewers.

AB InBev gained 2.82% in Brussels, while elsewhere Carlsberg added 2.71%, Heineken closed 1.26% up, and Altria Group — which owns almost 27% of SABMiller — was up 2.84% in early New York trade.

Credible alternative

Market speculation has been growing this year that SABMiller is looking to buy either spirits group Diageo or Heineken in an effort to avoid being absorbed by AB InBev.

Diageo’s shares closed 2.23% up in London on Monday. On whether SABMiller had approached the company with a separate offer, a Diageo spokesman said: “We do not comment on rumour and speculation.”

Barclays sees a Diageo-SABMiller merger as a “credible alternative” to an AB InBev deal. This could take the form of a full merger, or SABMiller buying Diageo’s beer business, which includes Guinness and Kilkenny.

Barclays said on Monday it estimated that integrating Diageo’s Guinness business into SABMiller “could yield over £400m of cost saving and additional revenue synergies”.

“Moreover, although the benefit of combining spirits and beer is less evident in some markets, overall value creation from a full merger could still be attractive.”

Attracting positioning

Barclays said SABMiller’s relatively open shareholder register “and attractive positioning” were the reasons for it being the common denominator in many beer industry consolidation scenarios in recent months.

It said consolidation could result from SABMiller sweetening its offer to Heineken, AB InBev being prompted “to act sooner rather than later”, or SABMiller pursuing Diageo.

The bank suggested that an AB InBev-SABMiller deal was not likely to be as compelling as AB InBev’s previous acquisitions, given more limited cost savings, a longer payback period and greater execution risk.

According to Bloomberg on Sunday, the family behind Heineken rejected SABMiller’s offer as it did not want to lose control of the Amsterdam-based brewer. SABMiller was assessing its next move, a source said, and it was not clear if it would make another approach.

Bernstein Research said on Monday it was “surprised but not shocked” that SABMiller had approached Heineken as this was an industry “where virtually everyone has talked to everyone in the past”.

While an SABMiller-Heineken entity would be the largest producer in volume, it would still be a distant second in terms of profitability. “It would also likely put SAB beyond AB InBev’s reach.”

September 17, 2014;

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