Grolsch could leave bitter taste at Asahi

January 13, 2016

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

Grolsch and Peroni could leave a bitter taste with Asahi investors. Japan’s biggest brewer is eyeing the Dutch and Italian beer brands cast aside as part of Anheuser-Busch InBev’s enormous takeover of SABMiller. A mooted 400 billion yen ($3.4 billion) tab, according to Japan’s Yomiuri newspaper, sounds frothy – and makes Asahi look desperate for overseas growth, even if it comes at the expense of shareholder value.

It’s not yet clear quite how expensive the auction could prove to be. Asahi could conceivably withdraw, pay less, or be beaten by a rival bidder such as San Miguel of the Philippines. Moreover, estimates of the brands’ profitability vary widely: analysts at Susqehanna, for example, assume just $90 to $100 million of EBITDA, whereas Stifel estimates the two bring in a combined $216 million a year.

Still, split the difference and the buyer would be paying nearly 22 times EBITDA of $156 million. A more reasonable price for first-world brewers would be say, 13 times – the multiple that SAB paid for Foster’s of Australia in 2011.

To make things worse, most beer deals hinge on lifting margins by stripping out duplication, squeezing suppliers and so on. But Asahi has little experience of the kind of ruthless cost-cutting that ABI excels at. It is also tiny in Europe: 2014 sales there were just 2.5 billion yen. So cost savings from cutting overlaps would be miniscule. Compare that to Carlsberg, another potential bidder, which could reap synergies worth 8 percent of target sales, according to Societe Generale.

There are some consolations. Selling Asahi Super Dry through the acquired businesses could boost sales of the Japanese brew. And bulking up in developed Europe is unlikely to misfire as badly as rival Kirin’s bet on Schincariol in Brazil did.

Still, Asahi’s interest shows how eager it is to distance itself from a shrinking home market – and how few good options it has to achieve that. The $15 billion brewer also feels vulnerable in an industry dominated by the likes of ABI, which is worth $190 billion even before swallowing SAB. But hostile foreign takeovers remain unlikely in Japan. It would be better for Asahi to be paranoid about doing right by shareholders.

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