Asahi Super Dry beer cans on display at the Asahi Group headquarters in Tokyo in this May 17, 2016 file photo. (Reuters Photo/Toru Hanai)

Japan's Asahi Expands in Europe With AB InBev Beer Deal


DECEMBER 14, 2016

Tokyo/London. Asahi Group Holdings will buy a group of eastern European beer brands from Anheuser-Busch InBev for 7.3 billion euros ($7.8 billion), boosting its new presence in the region in the largest overseas beer deal by a Japanese brewer.

AB InBev agreed to sell brands including Pilsner Urquell from the Czech Republic, Poland's Tyskie and Lech, Hungary's Dreher and Romania's Ursus to ease clearance from competition regulators for its $100 billion takeover of SABMiller, finalized in October.

The acquisition, seen closing in the first half of next year, would be Asahi's biggest deal, building on its 2.55 billion euro purchase of SABMiller's western European brands Peroni and Grolsch.

It was announced on Tuesday (13/12) morning, less than 24 hours after the deadline for final bids, according to sources close to the matter.

Asahi said on Tuesday that the business had annual earnings before interest, tax, depreciation and amortization (Ebitda) of 493.8 million euros in the year to the end of March.

Based on that figure, its bid represents a multiple of 14.8 times, which is higher than the 12 to 14 times brewing assets in mature markets often fetch.

It paid about 15 times Ebitda for Peroni and Grolsch, its first foray into Europe, fueled in part by synergies with its existing business in Australia.

Asahi was widely seen as the frontrunner in an auction whose first round included bids from a consortium led by Swiss investment firm Jacobs Holding, Czech investment firm PPF, China Resources and private equity firms Bain Capital and Advent International.

Asahi, which needs to offset a weak home market, said the purchase would allow it to generate nearly a quarter of sales from overseas, up from 16 percent in October.

Also reaching outside Japan, Sumitomo Corp agreed last week to buy Ireland's Fyffes for 751 million euros in a deal that will merge the largest banana distributors in Asia and Europe.

Mature Markets

Asahi's latest deal will give it 9 percent of the European beer market excluding Russia, said Bernstein analyst Trevor Stirling, putting it third behind Heineken with 20 percent and Carlsberg with 12 percent.

Eastern European consumers already drink a lot of beer. The Czech Republic, where Asahi will be the leader, has the world's highest per capita consumption, though SAB's European margins had been eroding for years amid price competition.

"They've been very tough [markets] and profits have been declining, not growing," Stirling said, although the rising popularity of premium and craft beers offers scope for growth.

The takeover of SABMiller, the biggest deal in consumer goods history, took a year to complete and included sales of SAB's businesses in Europe, the United States and China.

These asset sales have recouped nearly 25 percent of the $100 billion price tag, but they have also removed a large proportion of its earnings capacity, effectively increasing the price for the higher growth areas of Africa and South America.

"The deal has become very expensive," said John Colley, a professor at Warwick Business School, but he added AB InBev, known for its frugal culture, could exceed its target for $1.4 billion in cost savings.

Another deal still to come is the sale of SAB's stake in an African soft drink business, which Coca-Cola plans to buy back and then sell to a bottler.

Funding Fears

Asahi shares fell more than 6 percent before closing down 4.6 percent, with market participants pointing to investor nerves about how the deal would be funded.

Asahi gave no details, but a source close to the situation told Reuters it would take more debt onto its balance sheet, which as of September, showed $471 million in cash, according to Thomson Reuters data.

Not including the Asahi deal, Japanese companies have spent $77.6 billion on outbound mergers and acquisitions this year, Thomson Reuters data shows, seeking to counter domestic deflation, weak consumer spending and a shrinking population.

AB InBev, whose shares were up 1.8 percent at 1343 GMT in Brussels, was advised on the deal by Deutsche Bank and Lazard while Asahi was advised by Rothschild and Barclays.