Anheuser-Busch InBev the worlds largest brewer raised its takeover offer for SABMiller (worlds number two) on Monday to an astonishing $103 billion. This adds an extra $3 billion to the initial $100 billion offer made just barely a week ago. If this deal is consummated then we are perhaps about to see a major shakeup in the beer industry around the world and to by extension Nigeria.
The beer industry has been undergoing a major realignment and re-positioning as beer makers jostle to catch up with the changing taste and needs of their customers. For an industry that is struggling to find growth, the battle has now shifted to board room with market leaders focusing on jealously guarding their market share and cannibalizing what is left of the industry.
However this pans out, one is expected to keep a close and watchful eyes on Nigeria. Nigerian Breweries last year consolidated its holding of its subsidiary after merging with Consolidated Breweries. Guinness Nigeria Plc also just recently announced that its parent company Diageo was looking to increase its equity in the Nigeria subsidiary to about 75%. These are all efforts geared towards consolidating market share and responding to industry demands. When organic growth is scarce, heavyweights turn predators on each other.
Any hope for International Breweries?
International Breweries owned mainly by SAB Miller has also not rested on its oars even though it has had a quiet 2015. Except for the 1 for 85 bonus shares it issued earlier this year nothing much as happened. I believe however that things could be different if the SAB Miller Anheuser-Busch InBev deal is closed. With that deal in the bag International Breweries could have new owners with more confidence and ambition to take on a larger share of the Nigerian market currently dominated by Guinness and Nigerian Breweries.
International Breweries (IB) trades at a price of about N17 and has lost over 25% of its value this year alone. It’s trailing earnings per share is about 29x compared to Nigeria Breweries’s 27x and 43x for Guinness. IB in its first quarter result ending June 2015 reported a 40% drop in pre-tax profits as top line growth came in flat for the first time since 2012. With the local beer industry facing a significant earnings dip it is unlikely that things will improve.
Watch this space
Despite the gloomy outlook for the company’s fundamentals, this is one stock that just has to find its way to my wish list. It is still pricey if I base my judgement on fundamentals alone but fundamentals is not in play at the moment. If this deal does happen then expect a ripple effect here.