It is unlikely that 3G would be able to execute two substantial deals
We believe the $48 billion bid by 3G and Berkshire Hathaway for Kraft (KRFT) makes an Anheuser-Busch InBev (ABI) acquisition of SABMiller (SAB) less likely in the near term. Brazilian private equity group 3G has owned a 21% stake in ABI since it helped finance the acquisition of Anheuser-Busch by its Belgian competitor in 2008, and it would probably be a partner in any future transformative acquisitions.
However, we think it is unlikely that 3G would be willing and able to execute simultaneously on two substantial deals both from a financial and strategic perspective.
Last June, we estimated that ABI would be able to extract $1 billion in annual cost savings from SABMiller, primarily from duplicate costs, but also from increasing central procurement. In the acquisition of Kraft, however, 3G and Berkshire Hathaway have said they expect to achieve $1.5 billion in cost savings, implying that they expect to create more value from this deal than an ABI-SABMiller combination.
Ironically, the deal for Kraft comes at a time when we think the financials of the ABI-SABMiller deal have become more attractive. ABI reports in euros and SABMiller in U.S. dollars, and the significant depreciation of the euro against the dollar in recent months has resulted in a significant increase in ABI's market valuation.
We estimate that half of any acquisition would have to be funded with ABI stock, meaning that the dilutive effect of any acquisition has decreased. Nevertheless, we believe the deal is on the back burner in the near term, and although we would not rule out a deal in the future, we remain convinced that the economics of the deal would have to be highly favourable to 3G and ABI.
We continue to regard SABMiller as one of the most compelling emerging-markets stories in our consumer staples coverage, but we think there may be targets that better fit 3G's acquisition and cost-saving playbook.
