has sold one of its most lucrative subsidiaries in its effort to reduce a $103 billion debt pile. But the prospect of a higher valuation for the remaining Asian business and less exposure to the volatile Aussie dollar limits the downside for the world’s largest brewer.
AB InBev said Friday that Japanese rival Asahi will buy its Australian beer brands, including Victoria Bitter and Pure Blonde, for $11.3 billion. At 14.9 times the earnings before interest, taxes, depreciation and amortization generated by the unit last year, this is a good price, particularly given that infamously frugal AB InBev has probably left little room for Asahi to cut costs.
Ordinarily, AB InBev might be expected to hold on to such a steady, cash-generative business. While the Australian division is growing sales at a lackluster 2%-3%, a dominant market position makes it highly profitable. An Ebitda margin of 47% last year compares with a company average of 40%.
But giving it up helps AB InBev to save face after plans for an aggressively priced IPO of its Asian business fell through earlier this month. The cash will be used to reduce net debt to around 3.9 times Ebitda by the end of 2019. That’s slightly less than the company would have managed had it got its Hong Kong IPO plans away at the midpoint, according to Bernstein analysis. But it sends an important signal to investors who have punished the stock for the company’s high debt levels over the past 18 months.
While Australia’s beer industry looks similar to other low-growth, developed markets such as the U.S., the Aussie dollar behaves like an emerging market currency given the country’s extensive economic links with China. A weak Australian dollar, which generates 3% of AB InBev’s Ebitda, is unhelpful given that 90% of the company’s debt is denominated in the greenback or euro.
The sale also helps AB InBev to go back to investors with a more compelling case for a minority listing of what remains of its Asian business. If it also manages to unload slower-growth Korean brands—and it has been approached by private-equity firm
—the unit will offer almost undiluted exposure to the rapidly growing Chinese beer market. That will make it easier to ask for a high valuation akin to companies like China Resources.
Bud’s owner has had its hiccups in recent months, but selling its Australian brands looks like a good move.
Write to Carol Ryan at firstname.lastname@example.org
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