Bud-SAB tie-up hinges on a scramble for Africa

September 24, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Africa is Budweiser’s lost continent. For SABMiller, it is the jewel in the crown. Where Anheuser-Busch InBev is basically absent, Africa generated 28 percent of SAB’s revenue and 30 percent of its EBITDA last year. That’s the key to a potential offer by the Budweiser brewer for its $89 billion rival.

Macroeconomic trends, and shifting African drinking habits, underpin SAB’s strength in Africa. For one thing, the pan-continental population is growing. SAB forecasts the rise at 2.6 percent this year. GDP per capita, meanwhile, it said is rising 5.4 percent – around twice the global average.

The beer story is even stronger. Africa’s annual average per-capita consumption of alcohol is in line with the global average, and worldwide the average annual consumption of beer is around 45 litres per head. Africans swill nine litres of branded beers per head and make up much of the difference with illicit or homemade hooch. As per-capita wealth rises, so does the chance more Africans will drink more branded beer. Governments might even help that shift since branded beers, unlike the so-called informal brews, bring tax revenue.

SAB and Castel, one of its partners, share around 55 percent of Africa’s “formal” beer market, according to research house Canadean. Using SAB’s 2015 figures as a baseline, that means each additional litre of branded beer sold across Africa per person would add $800 million to SAB revenue. If SAB sells just three more litres per head, its total sales would increase by almost a fifth.

In March, SAB said that its African revenue, before exchange-rate fluctuations, rose at a compound annual rate of 9 percent in the five years from 2010. It said growth around 10 percent was possible in future. A convincing top-line expansion story is required if shareholders on either side are to roll into the new entity and thereby reduce the acquirer’s debt financing needs.

Even in developed markets, premiumisation – getting drinkers to buy more expensive beers – will help, as will small but increasingly popular craft beers. But if Anheuser’s mooted $110 billion-plus acquisition of SAB comes off, a large part of the new company’s future riches may come from the world’s poorest continent.

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