LONDON — Africa is where SABMiller began more than 100 years ago, providing beer to thirsty miners in Johannesburg. Now, the continent is a key region of the end game in global brewing consolidation as Anheuser-Busch InBev weighs an offer for its biggest rival.
ABInBev would gain access to more than $7 billion in African revenue by acquiring SABMiller, whose brands in the region include Castle lager and Carling Black Label. The company generates almost one-third of its revenue and profit from Africa, the world’s fastest-growing beer market, and has a dominant share in countries like Botswana, Mozambique, and Tanzania. About 65 million Africans are due to reach the legal drinking age by 2023, and ABInBev would like to serve them a Budweiser.
“We believe the jewel in SABMiller’s crown is its cost advantage and growth opportunities in several African markets,” said Morningstar analyst Philip Gorham in a note written before Wednesday’s announcement that the companies were in talks. “It has the scale, concentrated locally, to hold a cost advantage over competitors.”
A combined ABI-SAB entity would derive 12 percent of revenue and 9 percent of profit from Africa, according to analysts at Fitch, giving AB InBev a firm foothold in a region where it currently has no presence. SABMiller owns 20 percent of French drinks maker Groupe Castel, a stake it could jettison in the event of a deal, analysts say. In turn, Castel has a 38 percent stake in SABMiller’s Africa business.
Winning over African consumers isn’t easy, which is where SABMiller’s local knowledge comes in. More than half of the African alcohol market is so-called informal booze, which includes homemade traditional brews that can be harmful and have led to deaths in countries like Kenya and Mozambique.
SABMiller has taken steps to move consumers to its more modern brands, which also include soft drinks. In Mozambique, SABMiller has used marketing and new products to double the per- capita beer consumption since 2000, according to an investor presentation. And in November, the company announced the formation of the biggest Coca-Cola Co. bottler in Africa.
Still, not everyone is convinced by Africa’s promise, and falling oil prices have weighed on growth prospects in places like Nigeria. In July, SAB’s Zimbabwean partner Delta Corporation said it would reduce employee headcount to address falling sales of lager and sparkling drinks. If SAB managers in Africa leave the company after the merger, that would jeopardize AB InBev’s ability to capitalize on the region’s growth.
“We think the justification that an acquisition of SABMiller is focused on capturing African growth is misguided,” analysts at Nomura said in a note earlier this year. If there is an opportunity to sell SABMiller’s African business, “we believe that ABI would consider it.”
