Heady Times as M&A Speculation Floats Brewers

Who knew that consolidation speculation in the beer industry could be sung to the tune of the Butthole Surfers’ “Pepper.” SABMiller (SBMRY) wants to buy Heineken (HEINY). Anheuser-Busch InBev (BUD) might want to buy SABMiller. And Molson Coors Brewing (TAP) might scoop up the leftovers.

Reuters

Credit Suisse’s Sanjeet Aujla assesses the winners and losers in a market ripe for takeovers:

Heineken last night clarified earlier Bloomberg reports that it recently turned down an approach from SABMiller, stating the Heineken family’s intention to preserve the heritage and identity of Heineken as an independent company. However, the suggestion of another wave of industry consolidation should continue to support the sector in the near term. As we recently published, we believe SABMiller can continue to create value as a standalone entity, both organically and as an acquirer. We suggested Molson Coors as a potential target, however a deal with Heineken could also have been a good fit.

1) If Anheuser Busch Inbev’s intention is to acquire SABMiller, will this draw them out? Does this put SAB in play? – Molson Coors is a beneficiary in this scenario as the natural acquirer of SAB’s share in the MillerCoors JV (to satisfy anti-trust hurdles). 2) If Anheuser Busch Inbev has no future with SABMiller, will it return cash to its shareholders as its balance sheet de-levers in the form of a higher payout ratio and share buyback, or look outside of the beer category for future deals? 3) We see low probability of Carlsberg (CABGY) being a target at this stage given political events in Russia (note SAB has exposure to Russia through its 24% stake in Efes), but could benefit in certain consolidation scenarios through acquiring businesses under anti-trust scrutiny.

Shares of Anheuser-Busch InBev have gained 3,3% to $114.56 at 3:30 p.m. today, while Molson Coors has risen 5.6% to $75.84, SABMiller have jumped 9% to $60.53, Heineken has advanced 1.6% to $39 and Altria is up 2.6% at $44.28.

The biggest winner in all this, however? It could be Altria (MO), which jas gained 2.6% to $44.28 for simply owning a bit more than a quarter of SAB Miller’s shares.