The Belgium-based brewer, weighed down with debt after its 2016 acquisition of rival SABMiller, said on Friday it had agreed to sell Australian subsidiary Carlton & United Breweries (CUB) at an enterprise value of A$16 billion ($11.3 billion).
For Asahi, the deal is its biggest ever and, according to a source close to the negotiations, will turn the Japanese firm into the world’s third biggest brewer after AB InBev and Heineken.
The transaction comes only a week after AB InBev shelved an initial public offering (IPO) to sell a 15 per cent stake in its Asian operations, including Australia, citing factors including unfavourable market conditions.
The source said Asahi had expressed interest in buying the Australian unit earlier this year but discussions only took off after the IPO plan collapsed.
“AB InBev was quick in re-engaging with Asahi as they could raise pretty much the same amount of cash they were aiming for with the IPO,” the source said, adding talks took place in Hong Kong and London.
What would have been the world’s largest flotation this year, raising up to $9.8 billion for AB InBev, ended up being the third-largest ever to be withdrawn. Sources close to the matter said investors had baulked at the price.
AB InBev said on Friday it still believed in the rationale of offering a minority stake of Asian business Budweiser APAC, now excluding Australia, provided it could be completed at “the right valuation”.
The brewer, which had billed the IPO as a means to drive regional consolidation, said the Australia sale would help it to accelerate expansion into other fast-growing markets in the region and globally.
Without Australia, a large but mature market, AB InBev’s Asia-Pacific operations would be more skewed towards faster-growth markets such as China, where AB InBev sells more Budweiser than in the United States.
With the inclusion of Vietnam and India, too, the IPO could prove more attractive than before.
Bernstein Securities analyst Trevor Stirling said the Australia business was a profitable cash cow, but an IPO without it could yield a higher valuation.
However, a question mark would remain over AB InBev’s more mature South Korean business, given that it had bought it back from private equity group KKR in 2014.
Debt Reduction
The bulk of the proceeds from the Australia deal will be used to reduce debt, AB InBev said, with the deal expected to close in the first quarter of 2020.
AB InBev shares were up 4.6 per cent at 1140 GMT, among the strongest performers on the FTSEurofirst 300 index as the stock more than recovered ground lost last week.
The brewer’s net debt totalled $102.5 billion at the end of 2018 and its net debt to core profit (EBITDA) ratio was at 4.6 times. It has pledged to reduce that to less than four times EBITDA by the end of 2020 and has a long-term target of two times EBITDA.
Asahi, which previously paid 9.85 billion euros ($11.1 billion) to buy AB InBev’s eastern Europe business as well as the Grolsch and Peroni brands, already sells its Asahi Super Dry lager in Australia along with Schweppes.
It will also gain leading Australian beer Victoria Bitter (VB), placing Asahi in more direct competition there with Japanese rival Kirin s, which produces the XXXX Gold brand through its Lion subsidiary.
Asahi said the deal would be debt-free and it would issue up to 200 billion yen ($1.9 billion) of shares to fund it.
Rothschild and Nomura advised Asahi along with law firm Allen & Overy. Lazard and Freshfields Bruckhaus Deringer worked with AB InBev.
The Japanese brewer, which has been seeking overseas deals to compensate for slow growth, said net debt would temporarily exceed four times EBITDA, with its debt to equity and capitalisation ratios also expected to worsen.
AB InBev said the enterprise value of the deal represented a multiple of 14.9 times EBITDA. The pricing of its shelved IPO had applied a multiple of 16-18 times for the Asian business.
Jefferies analysts said the Australia multiple was attractive for AB InBev and would cut its net debt this year to $87 billion with a net debt to EBITDA ratio of 3.9, achieving its target a year early.
