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.

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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".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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