Grolsh 400 years

AB InBev’s decision to sell off three premium SABMiller beer brands has been predicted to trigger “a hotly contested auction” amongst global brewers - with Carlsberg most needing to strengthen its ailing position, according to dealmakers and analysts.

The Belgium brewing giant, which already has Stella Artois and Budweiser in its stable, confirmed it was exploring a sale of Peroni, Grolsch and Meantime in a pre-emptive move to appease EU regulators and get the £68bn mega-merger across the line.

Peroni is one of the few top 10 lager brands in growth in the UK, with value sales rising 3.5% to £101m last year compared with a 0.7% decline for the category and falls of 5.2% for Carlsberg Export and over 7.6% for Carlsberg [Nielsen 52 w/e 10 October] - and that was before Tesco delisted the lines.

“There will be a lot of interest in the brands, with at least two of the big brewers likely to take a look,” said Robert Bishop, international head of corporate at DLA Piper. “There is also the possibility that Diageo might want to add to their portfolio. It should be a pretty hotly contested auction.”

Carlsberg would benefit most from a deal, said Mirabaud investment analyst Jonathan Fyfe. The group’s struggles in the UK are well-documented, with a restructuring announced last month in response to a deteriorating performance and the wholesale delistings from Tesco. But Carlsberg is also underperforming in a number of markets, including Russia and China, with massive impairments announced in the same Q3 results. “A deal would do a lot to turn around the UK market and also transform its Italian business into something worth investing in,” Fyfe said. Despite a constrained balance sheet, due to euro denominated debt for the struggling Russian business, the deal was “worth doing” for Carlsberg, he added.

Strong interest is also tipped to come from Heineken, C&C Group - the Irish owner of Bulmers, Magners and Tennents - and Molson Coors. 

AB InBev has already agreed a $12bn (£8bn) sale of SAB’s MillerCoors joint venture in North America to Molson Coors in another pre-emptive move to ward off US antitrust watchdogs. Fyfe said this could potentially give the US brewer, which already distributes Grolsch in the UK, first refusal on the assets.

The sale of SAB’s premium European brands is a clear indication of AB InBev’s intention to complete the merger with as few complications as possible while keeping hold of its own premium lagers.

“It’s a colossal deal, so if there is any doubt about getting clearance AB InBev will want to get on the front foot by offering remedies,” Bishop said. 

“If you don’t act then doubt lingers and the chance of a phase two investigation ramps up. ABI will be keen to close and start realising the synergies. Offering to sell Peroni and Grolsch is probably a small price to pay as they are unlikely to be central to the rationale for the merger and they are attractive brands that will generate interest from third parties (so no danger of a fire sale). Failing to act would be letting the tail wag the dog.”