E-Malt.com News article: EU: Sale of SABMiller’s eastern European assets draws attention as such highly priced deals don’t come along every day in the region

Multibillion-dollar takeover deals do not come along every day in central and Eastern Europe. That makes the €5 bln-plus auction of SABMiller’s eastern European brewing assets a focus of particular attention, the Financial Times reported on November 23.

The sale, which is part of Anheuser-Busch InBev’s £71 bln takeover of SABMiller, is expected to be finalised in coming weeks. It will help make this the biggest year for CEE takeovers by value for at least a decade.

While the chance to acquire beer brands is increasingly rare in a globally consolidated industry, other factors have driven the interest, too.

Hungary and Poland, home to two of the five assets, have governments that are championing the idea of repatriating businesses and brands.

This comes after post-communist privatisations saw large swaths of their economies end up in foreign hands. Another company is in the Czech Republic, which has the world’s highest per-capita beer consumption and a proud brewing heritage.

The jewel in the sale is Plzensky Prazdroj, the number one Czech brewer and owner of the renowned Pilsner Urquell brand. There is also the Polish number one, Kompania Piwowarska, maker of Tyskie and Lech, and Romania’s top brewer, Ursus. Slovakia’s Topvar and Hungary’s Dreher are each number two in their markets.

The downside to the offerings is that while these are big beer-drinking markets, they are saturated and low-growth — with price competition that eats into margins.

AB InBev announced the sale in April, ostensibly to speed up approval for the SAB deal. In fact, AB InBev was largely absent from these markets, so analyst Trevor Stirling of Bernstein suggests the decision had more to do with commercial than regulatory concerns.

There may be scope for further international expansion of brands such as Pilsner Urquell, plus brand extensions and “premiumisation”, persuading drinkers to pay higher prices for more upmarket products. But SAB has already spent time nurturing these businesses.

European brewers such as Heineken and Carlsberg, moreover, would probably face antitrust issues if they joined the bidding.

That has left Japan’s Asahi, which agreed in April to buy SAB’s west European brands Peroni and Grolsch and the UK craft brewer Meantime for €2.55bn, as the favourite. It is competing with China Resources, the brewer of Snow lager, and financial investors that seem to be interested in the brands for cash flow.

“As long as you have got steady cash flow, that’s better than investing your money in the bank for very low interest rates,” explains Mr Stirling.

But some unusual names also cropped up among the potential bidders. PZU, Poland’s state-controlled insurer, which is acquiring UniCredit’s Polish lender Bank Pekao, last week denied reports it had made an offer. It was reported to have teamed up with Maspex, an acquisitive Polish juice maker, and Mol, the Hungarian energy company.

Mol, which is said to have come under pressure to create more jobs at home, took a look at the brewers as part of a strategy to transform its fuel retailing network into a “consumer goods and services business”. But people briefed on the process say it has decided against bidding.

Regional tycoons have been circling too. Petr Kellner, the wealthiest Czech businessman, is among the bidders, with his PPF Group investment firm.

So is another Czech family investment company, R2G, set up by a tyre tycoon, Oldrich Slemr, as part of a consortium.

Kulczyk Investments, the business founded by the late Polish billionaire Jan Kulczyk, took a look as well. Mr Kulczyk, who died last year, made some early investments in Polish brewing and he eventually parlayed them into a 3 per cent stake in SABMiller.

So buying back the assets would have brought Kulczyk full circle. But talks with private equity partners over a joint bid appear to have been unsuccessful.

Ultimately, Asahi looks best-placed to make the winning bid; it can share overhead costs with the former-SAB west European brands.

While bringing them “home” might have some romantic appeal, the best way for central and Eastern Europe’s companies, billionaires and state and private investment funds is not buying beer brands but investing in innovation and technology.

Brewers hardly qualify as strategic businesses or high-growth assets — even in the beer-loving Czech Republic.


23 November, 2016