Breakingviews: AB InBev’s deal machine goes into smart reverse

Anheuser-Busch InBev’s deal machine is going into a smart reverse. The Belgian brewer’s sale of its Australian business to Asahi for $11.3 billion will cut debt. The Japanese company is paying a lower valuation for the maker of Victoria Bitter than AB InBev wanted from an initial public offering of its Asia business, shelved last week, but probably higher than the multiple investors ascribed to the unit. It keeps the door open for boss Carlos Brito to try again.

The Asia-Pacific IPO was supposed to raise almost $10 billion, helping to solve another problem: The parent had net debt of $102 billion at the end of last year following its 2016 takeover of SABMiller. According to the Wall Street Journal, the brewer wanted to reduce that to $80 billion, a level that would enable it to continue pursuing acquisitions and capital investments without being downgraded below investment grade by credit-ratings firms.

Selling the unit, Carlton & United, will help. At 14.9 times 2018 EBITDA, the valuation paid by the Japanese is less than what AB InBev wanted for the entire Asia business, which was valued at 19.7 times at the low end of a punchy price range in the IPO. However, in attempting to do a sum-of-the-parts assessment, investors might have valued the business Down Under similar to mature-market brewers such as Japan’s Kirin and Sapporo, and Denmark’s Carlsberg, which trade at between 11 and 12 times.

True, Carlton & United’s sales grew by low single digits last year due to heightened competition and declining consumer confidence. But it’s still the number one brewer by volume in Australia, according to Euromonitor, and Asahi is unlikely to sell it back to the company, unlike when AB InBev sold its South Korean business to private equity in 2009 and re-acquired it later. That unit could be worth $8 billion if Brito wanted to repeat the trick to raise more funds.

Disposals, however, don’t provide a currency to do more deals. The upside is that, in its shrunken form, AB InBev’s Asia business will be more reliant on emerging markets like China, India and Vietnam, where peers trade at higher multiples. So if the brewer did re-attempt to list, it might be able to get what it wanted in the first place – a lofty multiple.

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