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Agenda. Alcoholic beverages categories. Spirits Unsweetened ABV > 20%. Beers Flavored with hops ABV 4-6%. Wines Prolonged fermentation ABV 9-16%. Players Diageo Pernod Ricard Bacardi Campari. Players Anheuser – Busch InBev SABMiller Plc Carlsberg Heineken.

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alcoholic beverages categories
Alcoholic beverages categories
  • Spirits
  • Unsweetened
  • ABV > 20%
  • Beers
  • Flavored with hops
  • ABV 4-6%
  • Wines
  • Prolonged fermentation
  • ABV 9-16%
  • Players
  • Diageo
  • PernodRicard
  • Bacardi
  • Campari
  • Players
  • Anheuser – Busch InBev
  • SABMiller Plc
  • Carlsberg
  • Heineken
  • Players
  • Constellation Brands
  • E&J Gallo

* ABV: Alcohol by volume

global brewing industry in the past

Global brewing industry : Geographic shifts

Global brewing industry : In the past
  • Beer consumption - predominantly being driven by geographies like NA, Europe, Australia
  • - Became an integral part of culture
  • - Remained no more a discretionary item of expenditure
  • Relatively large geographies – high population, high growth potential were still untapped
  • Prevalence of local beers in untapped geographies – sans premiumization
  • Mature markets –became more & more fragmented
  • Stiff competition, slow growing consumer base – squeezing margins & declining growth
  • Emerging markets became next frontier – on the back of growing population & affluence
  • Obvious first targets : - Latin America – cultural alignment with Europe
            • - SE Asia – growing affluence & rapid urbanization
  • Next in line – China & India
global brewing industry current scenario
Global brewing industry : Current scenario

Beer – region wise PLC stages

Per capita consumption of beer by region

Source : Datamonitor, WHO

global brewing industry future outlook
Global brewing industry : Future outlook
  • Mature markets – Saturation, cutback on
  • spending, high unemployment levels - growth
  • expected to be sluggish
  • Emerging markets will fuel consumption
  • - Expected socio-economic improvement, rising
  • per capita income
  • - High correlation between improving wealth and
  • beer consumption
    • BRIC key to offset sluggishness
  • - Increased focus of global brewers

Source : Datamonitor, Research Reports

competitive landscape
Competitive landscape

Source : Company Reports, Datamonitor, Research Reports

brewers market positions
Brewers : Market positions


#1: ABInbev : (48%) (Budweiser, Stella Artois, Hoegaarden)

#2: SABMiller

#3: Heineken


#1: SABMiller (Miller Genuine Draft, Pilsner Urquell)

#2: ABInbev

#3: Heineken


#1: Heineken (26%)

#2: ABInbev (22%)

#3: SABMiller (20%)


Highly fragmented market

Brewers share leading positions in different countries


#1: Carlsberg (Carlsberg, Baltika, Tuborg) (39%)

#2: ABInbev (18%)


#1: SABMiller

(CRE - Snow) (20%)

#3: ABInbev (11%)

#5: Carlsberg


#1: ABInbev

(Brazil: 42%, Argentina: 69%)

#2: SABMiller (Lat Am: 93%)

#3: Heineken


#1: SABMiller (89%)

#2: Heineken


#1: Foster’s (50%)

#2: Lion Nathan (Kirin) (38%)

Source : Company Reports

sabmiller building locally winning globally
SABMiller : Building locally, winning globally

Company that has grown out of acquisitions

1895 2003 2008 2008

Vision : To be most admired company in global beer industry

Key facts : 200 brands, 6 continents, 75 countries

Source : Company Reports

sabmiller threats opportunities
SABMiller : Threats & opportunities
  • Threat from ABInBev
  • Having realized more than 90%
  • of the total $2.5 Bn of cost
  • synergies from integration in
  • 2008 is at more than
  • comfortable debt level with
  • debt/EBITDA almost reaching 2.0x
  • Potential comeback of M&A on
  • strategic agenda
  • With gloomy scenario in NA due to
  • spend cuts, unemployment at 9%
  • leading to squeezing margins AB will
  • look to strengthen its position in
  • EMs like LatAm & Asia
  • This may lead to AB eating away
  • SAB’s pie from its stronghold
  • markets

SABMiller’s massive exposure to emerging markets -requires sustained investments and demand for higher FCF generation

Rising raw material and crude prices pushing transportation costs higher

Associating with an established player in emerging markets who can generate cash on a sustainable basis

30% of SABM’s net profit comes from its associates like Molson Coors & CRE – sizeable, cash hungry and less controlled by SABM, leading to shared access to the associates’ cash flows

Market share consolidation may give increased negotiating power with retailers and suppliers

Dominance of mega retailers – increased control on margins, introduction of private labels

sabmiller financial strength
SABMiller : Financial strength
  • Leverage
  • No current plans of accelerating distribution of funds to shareholders
  • Funds are primarily diverted towards keeping the leverage levels within targeted 1.5x – 2.0x debt/EBITDA range
  • Ratio of CFO/debt has been increasing continuously over the last 3 years – 32-38% in 2008 to 48% in 2011
  • Average debt maturity decreasing - 4 years in 2011 & which was 4.7 years in 2010
  • Liquidity
  • In position to generate strong medium term FCFs despite capex & dividends distribution
  • Generated discretionary cash flows of $1.4 Bn over the last two years
  • $3.2 Bn of undrawn committed credit facilities
  • $1.1 Bn of cash available against $1.3 billion short term maturities
  • Financial position
  • Strengthening – availability of free cash & reducing leverage
  • Sufficient headroom under company’s debt covenants
  • In position to improve price/mix to mitigate volatile agro commodities costs,
  • negative currency effects & weak consumer sentiment

SABMiller comfortably poised to make provisions for additional means of financing to fund further growth plans

Source : Company Reports

way forward
Way forward
  • SAB can look for complementing the group’s current footprint with a well established local business
  • With such a move SAB can strengthen its position in LatAm & Africa which will help it pose its defenses
  • against a possible advent of AB
  • Consolidation in Asia not only will increase Asian region’s contribution to its top line but also will take it to
  • such a level which will make it difficult for AB to counter
  • SAB can gain significant scale advantage over its other peers as well

Carlsberg : Brand as many, but stand as one

Vision : To be the fastest growing global beer company

Regional presence with no. of breweries







3rd largest market share holder globally

Key facts : 200 brands, 2 continents, 50 countries

One of the earliest to go for internationalization, but not as aggressive as competitors in market penetration

After establishing stronghold in Russia, poised to embark on Asian growth with sustained expansion in China & Indochina

Source : Company Reports


SABMiller – Carlsberg integration

Geographic footprint of Carlsberg - highly complementary to that of SABMiller

Combined entity will be the largest player in China,

S-E Asia, Germany, UK

Combined entity

SABMiller : Emerging Markets (EM)  Mature Markets (MM), Carlsberg : MM  EM, Enhanced regional strength in EMs

Increased concentration in EMs & resulting market dominance of combined entity will be key driver to profitability

Financials comforting the level of debt & liquidity

Enhanced FCF generating ability of the combined entity will satiate the overlapping need for capex required for strengthening position in emerging markets

SABMiller’s dependency on associates for cash generation from emerging markets will shift to combined entity

Source : Company Reports, Datamonitor


SABMiller – Carlsberg integration

  • Complementary product portfolios
  • Absence of a flagship premium brand from SABMiller’s product portfolio will be filled by the crown jewel – ‘Carlsberg’ – possible
  • launch in markets like LatAm and NorthAm
  • Carlsberg’s energy and soft drink business - natural diversification of SAB’s portfolio – building image in health conscious society
  • Carlsberg’s new repositioning strategy can be leveraged upon to launch SAB’s local brands in E Europe & NW Europe markets
  • Operational efficiencies – economies of scale, higher negotiating power with suppliers & retailers
  • Access to each other’s breweries – benefits of economies of scale along with optimization
  • SABMiller’s bottling plants can be expanded to accommodate Carlsberg’s products
  • Carlsberg’s SKU rationalization & standardization strategy can be extended to SAB’s products
  • Synergies through cross utilization of human resources
  • Sales & marketing synergies
  • R & D – Combined effort would be even more fruitful
    • Carlsberg’s development of a new yeast strain, together with a relatively new high yielding strain of barley will help
    • keeping beer fresher for longer. This is of particular importance in emerging markets, such as India and Russia, with long
    • transport hours and hot warehouses in summer months
    • SABMiller’s new low gauge beer crown is expected to reduce requirement of steel by 10%, leading to annual cost savings of
    • about $ 12 Mn in material costs alone (Backus’s design uses 0.17 mm gauge, instead of the industry standard of 0.22-0.24 mm)

Strategic fit

Both the companies follow the strategy of premiumization of local brands


Alternatives to Carlsberg

Anadolu EFES

Heineken NV

Asahi Holdings

  • Next best alternative for Carlsberg
  • Strong footprint in Africa and scope for
  • market share consolidation in MM
  • 5th largest in Europe and 13th in the World
  • 5th largest bottler for Coca Cola
  • Market leader position in Japan can be
  • leveraged upon to expand further
  • Smaller geographic footprint
  • Relatively new player, no big brands
  • Product portfolio too diversified to be a
  • pure brewer
  • Family driven holding structure
  • Smaller footprint in other EMs

Source : Company Reports, Datamonitor

projections and sensitivity to macroeconomic factors
Projections and sensitivity to macroeconomic factors
  • Growth drivers :
  • - Price/mix in mature markets
  • - Volume in emerging markets
  • - Product mix – catering to all consumer segments (economy – standard – premium beer)

Carlsberg projections

Macroeconomic factors sensitivity

Source : IMF, Company Reports

transaction and trading comparables
Transaction and trading comparables

Transactions Comparables

Trading Comparables

Source : J P Morgan PIB


Valuing synergies

Synergies : $19.43/share (Bull case), $9.71/share (50% realization) and no synergies (Bear case)


Funding structure analysis

All cash offer

Part cash part equity

All equity share swap

  • Using 100% of cash available with
  • SABMiller ~ $1.07 Bn
  • Debt to be raised ~ $18.91 Bn
  • Raising debt on SABMiller ~$12.65 Bn
  • Infusion of $13.72 Bn in an SPV
  • Raising debt on SPV ~ $6.26 Bn
  • Swap ratio (52 wk avg mark cap) ~ 3.8
  • Swap ratio based on revenues ~ 7.9
  • Swap ratio based on EBITDA ~ 5.5
  • Ceiling swap ratio of 4.5
  • Issuing 710 Mn shares of SABMiller
  • Using 100% of cash available with
  • SABMiller ~ $1.07 Bn
  • Raising debt of $4.52 Bn on SABMiller
  • Issuing 393 Mn shares of SABMiller
  • Ceiling swap ratio of 2.57
  • Cash : equity ~ 28:72
  • Outstanding shares ~1.59 Bn2.30 Bn
  • No additional debt to be raised
  • Interest costs to remain same
  • - SABMiller ~ 8.44%
  • - Carlsberg ~ 8.86%
  • I- Banking fees ~ $50 Mn
  • Outstanding shares ~ 1.59 Bn
  • Pledge Carlsberg shares against debt
  • Higher interest costs
  • - SABMiller ~ 8.44%  9.50%
  • - Carlsberg ~ 8.86%  10.00%
  • I- Banking fees ~ $50 Mn
  • Outstanding shares ~1.59 Bn1.98 Bn
  • Additional debt is within comfort level
  • Slightly higher Interest costs
  • - SABMiller ~ 8.44%  9.00%
  • - Carlsberg ~ 8.86%
  • I- Banking fees ~ $50 Mn

Post acquisition creditworthiness

All cash offer

All equity share swap offer


  • In case of all cash offer
  • Highly levered combined entity, high debt/EBITDA, low interest coverage ratio
  • Strained debt position even in case of 100% synergy realization
  • Expected to reach level of comfort (3.5x) over a period of 3-4 years
  • Negative impact on credit rating – higher credit spreads
  • In case of all equity share swap
  • Combined entity – moderately levered, average debt/EBITDA and interest coverage ratio
  • Comfortable debt level even if no synergies are realized
  • Possibility of a credit rating upgrade

Deal consideration and bidding tactics

  • Shareholding pattern of Carlsberg
  • Carlsberg Foundation ~ largest shareholder with 30.33% equity stake and 74.16% of the voting rights (‘A’ shares)
  • Common shareholders ~ 69.67% equity holding and 25.84% of the voting rights (‘B’ shares)
  • Board approval is a pre-requisite due to internal take over defenses in place

Unsolicited friendly offer to promoters

Proposal to do the business together with Carlsberg being 100% subsidiary of SABMiller

Offer same exchange ratio of 3.60 – 4.20and an exit option after

5 years at then prevailing fair market value

  • Start with a considerable premium
  • Equity share swap offer with
  • exchange ratio of 3.60-4.20

If not willing to be a part of business

Willing to be a part

But offer is not acceptable

Exit option can be provided by offering 100% cash with a bid price of

$121 per share

Consequent offer with an exchange ratio of 4.20-4.50

If willing to exit but offer is not acceptable

Final offer at an exchange ratio of 4.66

Consequent offer s firstly at $127 per share and then $130 per

share which will be the ceiling price

  • Offering MD’s position on rotating basis
  • Offering CXO level positions
  • Promoter approval will trigger Danish take over code ~ majority of voting rights
  • Open offer to common shareholders for remaining 70% stake at same price as promoters ~ Danish take over laws
acquisition issues
Acquisition issues
  • Post merger management and employee integration issues
  • SAB’s growth has primarily been inorganic in nature whereas that of Carlsberg has been organic in nature
  • SAB’s management is mainly based out of emerging markets whereas that of Carlsberg is mainly based out of mature
  • markets
  • - This may lead to integration issues (aligning the interests of management and executives)
  • Acquisition may be challenged on anti trust grounds
  • Legal Issues
  • Stitching: Carlsberg can acquire another company and enter into a Stitching Agreement in Netherlands, making SABMiller’s bid
  • for Carlsberg more expensive and potential acquisition more difficult
  • Pre-merger take over defenses by Carlsberg
  • White Knight/ White Squire
  • Carlsberg can merge with another brewer
  • Crown Jewel Defense: May sell off important Carlsberg brands
  • Sentimental attachment to “the Carlsberg Brand”
  • Potential Political Intervention
  • Introduction of new laws/ Change of existing laws
  • SABMiller may incur higher debt raising costs due to global financial crisis and worsening debt markets
  • Case materials provided by JP Morgan
  • Company Reports
  • Datamonitor
  • Research Reports