SABMiller (South Africa/UK)

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In the rapidly consolidating beer market, SABMiller was until Oct 2016 one of the world's top three brewers, engaged in a fierce rivalry with two major competitors, Anheuser-Busch InBev and Heineken, each of whom had strengthened its position significantly since 2007 with sizeable strategic acquisitions. It lacked a single strong global brand, but controlled a number of fast-growing regional beers including Snow in China (the world's biggest individual beer by volumes), Castle Lager from South Africa, Pilsner Urquell from the Czech Republic, Peroni from Italy and of course, Miller Beer from the US. SABMiller was itself the result of several large mergers. The group was formed from the combination in 2002 of South African Breweries with US-based Miller Brewing, and it established a major presence in Latin America in 2005 with the acquisition of Grupo Bavaria, the region's second largest brewer. In 2007, the group agreed to combine its US operations with those of Molson Coors to create MillerCoors, a stronger rival to local giant Anheuser-Busch. In 2011, SABMiller acquired Australian group Carlton for a total of A$11.5bn. Some analysts had expected the Molson partnership to lead to a full merger of both groups. However, that never materialised and instead speculation grew regarding a break-up bid from AB InBev. After months of encouragement from the financial markets, AB InBev tabled a bid for its smaller rival. An offer of $104bn was eventually accepted, and following more months of negotiation with regulators, was approved by shareholders in Sept 2016 and completed a month later.

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SABMiller website

Brands

Miller Beer Gambrinus
Botchka Dreher
Castle Lager Tsogo Sun
Urquell Grolsch
Appletiser Gambrinus
Radegast Kozel
Snow Aguila
Birra Peroni Tyskie
Ursus Bluetongue

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 15th Dec 2016: Asahi Breweries of Japan is doubling down on Europe, having agreed a new deal to acquire SABMiller's remaining brands in the region for E7.3bn. It has already acquired SABMiller's Grolsch and Peroni; the new acquisition covers a collection of Central & Eastern European beers including Urquell from the Czech Republic, Hungary's Dreher and Poland's Tyskie and Lech. SABMiller's new owner AB InBev had agreed to sell the brands to appease regulatory concerns. However, the price tag paid by Asahi is significantly higher than anticipated because of stiff competition from rival private equity bidders. Following completion, the Japanese company will become Europe's third largest brewer after AB InBev and Heineken.

Adbrands Weekly Update 13th Oct 2016: In yet another unwinding of one of SABMiller's regional units post-acquisition by AB InBev, Coca-Cola announced plans to buy back majority control of soft drinks bottler Coca-Cola Beverages Africa, which accounts for around 40% of Coke's total sales across the continent. Coca-Cola Company has the right to reacquire SABMiller's 54% stake under a change of control clause, but it won't be cheap, somewhere between $3.5bn and $5bn. It will then try to refranchise the business to other potential partners. The key goal is to get the business away from AB InBev, which is a lead bottler for arch-rival Pepsi in Latin America. Bernstein analyst Ali Dibadj believes Coke fears that it could itself eventually become a target for the rapacious AB InBev, and wants to avoid giving that group "a look under the hood of the company". Other observers have suggested that the move will encourage even closer ties between AB InBev and PepsiCo.

Adbrands Weekly Update 29th Sep 2016: It's done. AB InBev's acquisition of SABMiller was approved by almost 96% of the latter's shareholders, despite earlier fears that it might be derailed by maverick institutional investors seeking an improved offer to compensate for post-Brexit currency fluctuations. Some SABMiller investors expressed sadness that their company name will simply disappear: the merged entity will remain AB InBev. However, SAB chairman Jan du Plessis was unmoved. "AB InBev are paying a full price for the company," he said. "They can do with the company what they wish; they can call it what they wish. That’s the way life works and that’s fine." The vote will now trigger a series of further corporate transactions, with the pre-agreed sell-off of SABMiller's competitive assets in the US, Europe and China to other brewers. SABMiller's shares will be delisted next week and completion of the merger is scheduled for October 10th.

Adbrands Weekly Update 11th Aug 2016: AB InBev issued details of its proposed management board assuming the acquisition of SABMiller goes ahead. Virtually all of the latter's current management team are expected to depart, and only one of the 20 top roles in the merged group will go to a current SABMiller manager. The revised deal will be presented to the latter's shareholders for approval on Sept 28th. Several institutional investors have said they plan to vote against the merger.

Adbrands Weekly Update 28th Jul 2016: That sound you hear is alarm bells ringing at AB InBev and SABMiller. Eight months after its original £71bn offer for SABMiller was accepted, and with almost all regulatory approvals now in the bag following months of protracted negotiations and multiple separate side-deals, AB InBev now faces a rebellion by minority shareholders that could potentially kill the whole thing. The original deal of £44 per share was worth $107bn last October, but Brexit has caused a plunge in the value of sterling so the same offer is now only worth $93bn. As a result, several institutional investors have been threatening to withhold their approval in a shareholder vote, one of only two steps left before completion of the takeover. (The other is a green light from Chinese regulators, expected imminently). AB InBev responded by sweetening its cash offer to £79bn, and is also offering an all-share alternative that would be worth more, but only if the shares are held for five years. To avoid further horse trading, AB InBev also invoked the phrase "final offer". As a result, under UK takeover rules, no further increase is allowed. If minority shareholders refuse to accept this new proposal, AB InBev will walk away. That could now happen. The deal needs 75% acceptance for clearance, but at least one major institution, Aberdeen Asset Management, has said it will reject the improved offer. To emphasize the seriousness of the situation, SABMiller has now instructed its employees to suspend all ongoing work on integration of the two companies until further notice. "This means that there should be no contact with AB InBev with immediate effect," CEO Alan Clark told staff in an email, "and all meetings and calls will be postponed until further notice... I appreciate this will cause lots of internal and external speculation. However, please stay focused." [UPDATED] In a significant boost to the likelihood of the deal coming off, Chinese regulators cleared it on Friday, and InBev's revised offer was accepted by the SABMiller board, who recommended shareholders accept it. Now all depends on the vote.


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Background

Free for all users | see full profile for current activities: The South African Brewery Company was founded in 1895 in what was then the small mining town of Johannesburg, at the centre of the Witwatersrand goldfields. It was floated on the Johannesburg Stock Exchange two years later, and the London Exchange in 1898. That year the company introduced Castle Lager, which was to be its flagship brand for the next 100 years. Despite the turmoil of the three-year Boer War, which began in 1899, The South African Brewery Company was the country's biggest non-mining business by 1902, and expanded into neighbouring Rhodesia and other territories during the first two decades of the century.

In the 1920s, the company moved into soft drinks in partnership with Schweppes, and acquired its own substantial glassworks to manufacture bottles. Further expansion into bars and hotels over the following years gave the company, now renamed South African Breweries, an extensive distribution network throughout southern Africa. In 1956, the company became by far the most dominant brewery in Africa when it acquired its two biggest South African rivals, Ohlsson's and Chandlers Union. However beer consumption in South Africa remained modest, limited by the country's severe apartheid laws to the comparatively small white population. However in 1962, the legal prohibition on consumption of alcohol by black South Africans was lifted, opening up the market substantially. It was to mark the beginning of a period of considerable growth for the company.

Over the next few years SAB negotiated local licenses to brew established brands such as Guinness, Amstel and Carling Black Label. In 1967, the company began to diversify, setting up a separate subsidiary, the South African Food Corporation, which acquired a selection of foods, tea and coffee interests. In 1969 SAB acquired management control of Retco Limited, the largest property development company in the country, previously controlled by developer Sol Kerzner. The group's portfolio of hotels and bars was consolidated as Southern Sun Hotels, and the company also acquired interests in furniture and footwear manufacturing and retailing. Groovy Beverages was established in 1970 as the company's soft drinks arm. In 1974 it took control of the local Schweppes operation through joint venture and acquired local licensing rights for Pepsi-Cola. Three years later, SAB swapped Pepsi for Coca-Cola, and spun off its retailing interests as Amalgamated Retail.

In 1979 SAB bought out virtually its only remaining brewery competitor, Rembrandt Group, giving it effective domination of the local beer market. At the same time the company restructured its other investments, reducing its stakes in vineyard group Stellenbosch and spirits company Distillers Corporation to 30%. Further acquisitions gave the group control of soft drink Appletiser and the Edgars retail group (sold in 2005). Southern Sun won the Holiday Inns franchise for South Africa in 1984, leading the group to spin out its hotels business outside South Africa as Sun International.

In the mean time however, South Africa was finding itself increasingly isolated in the world market as a result of its brutally enforced racial segregation laws. SAB had actually been among the first local businesses to introduce non-discriminatory employment laws, in 1978. However from 1985, a series of trade sanctions and boycotts began to be imposed on South Africa, affecting all commercial enterprises equally. SAB established a separate investment business in Europe, and over the next few years acquired a string of other diversified businesses as international companies began disinvesting in the country.

Finally in 1990, the South African government began steps to abandon racial segregation, and the country was opened up once again to international investment. In 1993, a year before the country's first landmark democratic election, SAB moved into central Europe, acquiring Hungary's largest brewer, Dreher. A year later SAB became joint venture partner in China's 2nd largest brewery, and moved back into other African countries. At the end of the decade the group also took control of the Czech Republic's two leading breweries, and later acquired control of several small breweries in Central America.

In 2002, the company was at the centre of a media row in the UK when papers allegedly disclosing plans by Interbrew for a hostile takeover of SAB were leaked to the British press. It later transpired that the documents were partly faked. Meanwhile, SAB was negotiating a more important deal of its own. In May 2002 the group announced an agreement to acquire Philip Morris Companies' Miller Brewing division for $3.6bn in stock. Although the #2 brewer in the US, Miller had for some time been Philip Morris's least dynamic division, with sales in steady decline since 1998.

The group also reduced its exposure to the hotels business. Operations outside Africa were sold back to Sol Kerzner in 2002 (becoming The One&Only Group), while the African Southern Sun business was transferred at the end of the year into Tsogo Sun, an African owned gambling and hotels group, in which SAB was already a minority shareholder. See full profile for current activities


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