Breakingviews: AB InBev’s Oz M&A party leaves antitrust headache

Mixing beer and cider produces a nauseous concoction called snakebite. In Australia, the competition watchdog doesn’t seem to like it, having raised concerns with Anheuser-Busch InBev’s planned $11 billion sale of its brewing unit to Japan’s Asahi, which gives the latter strong positions in the market for both drinks. Its objections could stymie boss Carlos Brito’s plan to cut debt.

The sale of AB InBev’s Australian unit, which brews grog such as Victoria Bitter, was part of a bigger M&A puzzle. The Corona-maker needs to cut debt following the 2016 acquisition of SABMiller. Yet its plan to list its Asian business foundered due to the lack of appetite for the slow-growing dregs Down Under. Selling that unit separately allowed the IPO to go ahead.

The Australian Competition and Consumer Commission has found the deal hard to swallow. In a preliminary view, it worries that by buying the Carlton & United Breweries unit, Asahi would own brands with a massive two-thirds of the cider market, including Bulmers and Strongbow. The ACCC rejected Asahi’s argument that cider should be viewed as part of the bigger beer market, rather than a standalone sector.

Asahi could probably sell some of the cider brands relatively easily, as the fermented apple drink represents a small proportion of the unit’s overall revenue. However, the watchdog is also worried about losing a beer brewer. Right now, it says, even with just 3.5% of the market, Asahi may be stopping the two big players, CUB and Lion, from raising prices. If Asahi buys CUB, competitive pressure will be lost. That could require bigger disposals.

AB InBev needs the deal to go ahead to keep ratings agencies happy. It wants to reduce its net debt to below 2 times EBITDA in 2023. Without the disposal, borrowing could be around 2.25 times EBITDA in that year, according to Refinitiv data and Breakingviews calculations.

Morningstar analysts reckon the sale may need to be renegotiated. Brito has other options too. He could probably find another buyer, such as a cash-rich private equity fund, or raise cash by selling other assets, like a stake in the listed Asian business. Yet scaling back exposure to fast-growing markets or selling for a likely lower price would be far less appetising options.

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