Glenboden M & A Originations

Implications of strategic alliance between SABMiller and Anadolu Efes

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Origination Status announcement of strategic alliance, October 2011
Asset Russia & Ukraine business units of SABMiller
Buyer Anadolu Efes AS (Turkey), no.1 domestic beer group with significant presence in Eurasia
Seller SABMiller plc (UK), global beer group
Buyer Rationale ceding of minority stake to global player, financial challenges
Seller Rationale global beer leadership, consolidation of Russian market
NBs SABMiller currently has volume market share of 7,2% and 6,2% in Russia and Ukraine respectively
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Having lagged its main competitors in global M&A deals in the late 2000s, SABMiller has surged back in front, through acquiring Foster's and now this strategic alliance with Efes. We examine how this deal affects the beer industry landscape, in Russia in particular.

Efes deal on the cards for a while ...Glenboden amongst others has been predicting the consolidation of Efes for years. The group's been milking its near -monopoly on the Turkish market, where it enjoys a market share of 85% and EBITDA margin above 40%, to fund its expensive expansion in Russia, Kazakhstan and other Eurasian markets.

This deal with SABMiller is only a strategic alliance, whereby SAB gains 24% of Anadolu Efes in exchange for contributing its Russia & Ukraine business units into that group. However if correctly structured it should 'neutralise' Efes as a competitor to SAB, although the former's JV with Heineken in some of its markets may be an obstacle.

Together with the Foster's deal earlier in 2011, this alliance with Efes allows SABMiller to catch up with its global competitors in big-ticket M&A deals. Heineken co-acquired Scottish & Newcastle in 2007, then FEMSA Cerveza in Latin America in 2009. Meanwhile, InBev merged with Anheuser-Busch in 2008. By comparison, SAB's last mega -deal was with Miller in the US, back in 2002.

... no change in Ukraine ...In terms of tangible benefits, the alliance changes nothing for SAB in Ukraine, where it has only 6% volume market share, since Efes is not significantly present in that market.

SAB's subsidiary Miller Brands Ukraine, with its Sarmat brewery, reported an impressive 21% volume growth in FY2011, a far higher increase than that of the overall market in that country.

However in order to gain leadership of the Ukrainian market, SAB would need to acquire the local 'legacy' champion, Obolon, which is currently owned by management. Obolon claims over 30% market share in Ukraine, and is also the no.2 imported brand in neighbouring Belarus.

... Russia to remain competitiveSAB saw its volumes grow only 1% in Russia in FY2011, a market hit by downtrading and competitor price reductions. There are still five major players with significant shares and ambitions in that market (see chart).

In theory this alliance will strengthen SAB's competitive position in Russia, as it will create a 'strong no.2 in value terms', behind Carlsberg's BBH ('Baltika').

However, Russia will still be a market fought over by all four global majors. As demonstrated by the neighbouring Polish market, where Carlsberg has surged in market share mainly through lower-priced brands in the discount chains, at the expense of both SAB and Heineken, even three can be a crowd.

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THIS LEAD'S VALUATION
Size (€ mln) 1.400
Sector brewing
Asset Quality Russia and Ukraine branded
Seller large plc
Buyer strategic alliance
P/S 2,8
P/Ebitda 12,75
Type enterprise value (business unit contribution)
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