SAB Miller kicks off European beer takeover speculation

SAB Miller, the Anglo-South African brewer, has triggered takeover speculation in the brewery industry after it tried and failed to buy Dutch beer giant Heineken.

Now it’s being reported that Belgium’s Anheuser-Busch InBev NV is talking to banks about financing what could be an offer to buy FTSE 100- listed SAB Miller for £75 billion.

This would be in line with rumours that have done the round for years but which have been given greater impetus amid a wave of mergers and acquisitions over the last year or so, encouraged by easy-money policies of major central banks that have in turn enabled firms to get hold of the cheapest levels of debt financing for decades.

News of Anheuser-Busch InBev’s probable intentions has added another leg to the hike in SAB Miller shares this afternoon, which were already trading strongly higher. They subsequently traded more than 13% higher on the day.

Reports state AB InBev hasn’t initiated active discussions with SABMiller, but is waiting to line up financing before making a formal approach.

At the same time, there are strong suggestions SAB Miller hasn’t given up its desire to buy Heineken, and might consider another bid.

The impetus for one huge brewer to buy another is quite simple if we consider the significant market shares held by the largest European brewers, making increased organic growth far more difficult than buying it in.

AB InBev had a nearly 20% share of the global beer market in 2013, according to corporate data provider Euromonitor.

SABMiller had a 9.6% share, closely followed by Heineken, on 9.3% share.

AB InBev shares traded more than 7.7% higher in Brussels a little earlier today, whilst Heineken’s Amsterdam-listed stock was up a relatively modest 2.5%.

A look at the financing status of the large brewers now considered to be ‘in play’ provides further insights.

In Europe, the two beer brewers with the most advantageous financing arrangements at the moment appear to be Carlsberg and SAB Miller. They’re the least-leveraged amongst the major names which currently have adopted gearing which exceeds 100% of their free equity, whilst Carlsberg’s net debt-to-equity over the last twelve months was 61.8% and SAB Miller’s was 64.8%.

In a highly-indebted sector, it would make sense that the least-leveraged players would gain added attractiveness beyond any geographical dominance.  In SAB Miller’s case, it tends to have large market shares in sub-Saharan African countries which by default can still be considered growth regions, capable of buttressing mature (meaning slower-growing) European and US markets.

With today’s ramp, SAB Miller stock has cleared prior all-time highs marked in 2013 at 3683.17p.

The stock continues to look underpinned. Therefore any selling is likely to remain within the range created by today’s new all-time high at 3857p and the day’s low so far at 3359p.