Asahi swoops on Carlton & United, but at what price?

Asahi, the Japanese beer giant, wants to offset its slowing domestic market with an Aussie brewing group. But is it paying a fair price? 

Man drinking can of VB beer
Asahi is overpaying for Australian brands such as VB

Early this year the Japanese beer giant Asahi paid £250m to gulp down Fuller, Smith & Turner. Now it has "swooped" on AB InBev's Australian beer operations in an $11bn (£8.7bn) deal, says Chris Johnson in The Daily Telegraph. Asahi hopes that its purchase of Carlton & United Breweries, "which owns brands including Victoria Bitter (VB), Cascade and Crown" will give it a "significant boost" in Australia, "which is already Asahi's second-largest overseas market after Europe, where its brands include Peroni, Grolsch and Estrella.

Asahi needed to do something, says Kantaro Komiya in Bloomberg. After all, it and its key rival have "seen domestic beer shipments decline for 14 straight years as fewer people reach the legal drinking age". But the cure for grappling with an ageing and shrinking population may be worse than the disease. The deal will require it to double its debt load and issue about 10% more shares. Credit-ratings agency Moody's warned that the deal will "significantly raise Asahi's financial leverage". So, it's no surprise that investors "lopped $2bn from the brewer's market value" after the news was announced.

A frothy valuation

Asahi may be paying too much, but AB InBev and its shareholders will be able to walk away happy, says Carol Ryan in The Wall Street Journal. The money will be used to reduce net debt to around 3.9 times profits by the end of this year. That "sends an important signal to investors who have punished the stock for the company's high debt levels over the past 18 months". The deal also reduces AB InBev's exposure to the "volatile" Aussie dollar.

It's probably for the best that AB InBev is leaving the Australian market, given that beer consumption down under has slumped from 500 bottles per person a year in 1975 to 224 in 2017, says Lex in the Financial Times. What's more, the sale of Carlton & United could also help AB InBev fulfil its long-term plan of floating its Asia-Pacific business. While it was recently forced to cancel an initial public offering of the $54bn division owing to a lack of enthusiasm from institutional investors, "a smaller Asian business should be easier to float". Such a listed vehicle could then be used "to acquire regional rivals".

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
The road to driverless cars
Sponsored

The road to driverless cars

The electrification of the automotive industry is gathering pace, but does the real future lie in driverless vehicles?
12 Aug 2020
The rise and rise of software-as-a-service
Sponsored

The rise and rise of software-as-a-service

The way we buy and use software has changed and there’s no turning back
12 Aug 2020
James Montier: valuations are way too high
Investment gurus

James Montier: valuations are way too high

The market is completely discounting the risk to the economy and operating as if there is nothing to worry about, pricing in a V-shaped recovery, says…
10 Aug 2020

Most Popular

Gold and silver have taken a vicious beating – is the bull market over already?
Gold

Gold and silver have taken a vicious beating – is the bull market over already?

The gold price has tumbled recently, leaving traders nursing losses – just a nasty correction or has the gold bull market run out of steam? Dominic Fr…
12 Aug 2020
No, the UK did not “plunge” into recession yesterday
UK Economy

No, the UK did not “plunge” into recession yesterday

That the economy took a massive hit due to Covid-19 should be news to no one, says John Stepek. The real question is what happens now.
13 Aug 2020
Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020