Gossip, they say, is just news running ahead of itself in a red satin dress. We know this proved the case with "Mega-Brew", the £79bn tie-up of AB InBev and SABMiller. So perhaps it wouldn’t be too much of a stretch to apply it to the latest bout of speculation about who might next be gulped down by the Belgian giant.
Don’t be thinking we’ve seen the end of mega-mergers. Talk that Coca-Cola will, at some point, be bought by AB InBev has again reared its head.
You see, Coca-Cola this week said it wants to buy SABMiller’s — or, erm, AB InBev’s 54% stake in the continent’s biggest Coke drinks bottler, Coca-Cola Beverages Africa (CCBA).
It’s basically just exercising its right (through a change of control clause), following the takeover of SABMiller, which according to Bernstein analysts rakes in close to US$1.5bn in revenue from its Coca-Cola business in Africa. Remember that CCBA, rather fractiously thanks to one Ebrahim Patel (of anti-Walmart fame), was stitched up only earlier this year. It was essentially created to consolidate its Southern and East Africa bottlers, allowing for a leaner and nimbler expansion with the pooling of resources and manufacturing, distribution and marketing capability across Africa. Atlanta-based Coca-Cola owns 11.3% of it, and the rest (apart from AB InBev’s fat 54%) is owned by the Gutsche family (which controls Sabco, a Coca-Cola bottler for the past 75 years).
CCBA serves 12 countries and accounts for more than 40% of all Coca-Cola beverage volumes on the continent. The new entity is expected to have revenues of $2.9bn and a 17% operating margin. So it’s an important component in "Big Red’s" global growth story. Now, the saucy stuff.
Coca-Cola obviously wants AB InBev at arm’s length — they know that there could come a time when they’re next on the (hit) list. They simply cannot afford to have AB InBev hanging around as a major partner, in a major region. They are said to already have an idea of existing partners who are interested in the stake, reportedly worth something like $4bn.
This is where it gets really interesting, though: AB InBev is controlled by private equity leviathans 3G Capital who, over the past few years, have been moving into consumer goods. They’ve come to back Burger King and Kraft-Heinz, teaming up with, wait for it — none other than Warren Buffett’s Berkshire Hathaway.
The Oracle of Omaha has a long-standing investment in Coca-Cola. Do you follow, dear reader? Two things, before I forget. Buffett is pronounced buff-itt, not boo-faai. Sigh. Also, I read a top piece in Fortune last year which quoted super-journalist Andrew Ross Sorkin (he wrote the bestselling Too Big To Fail, read it) asking Buffett why Berkshire Hathaway shareholders should be proud to own Coca-Cola, adding that Buffett should not use his own large consumption of Coke as evidence that the soft drink is not as harmful as people say. Buffett’s answer was classic (he apparently drinks five 12oz servings of Coke a day and eats ice-cream and chips for breakfast): "There’s no evidence that I will any better reach 100 if I had lived on broccoli and water."
Don’t forget that the CCBA buyback prevents overlap. AB InBev, which sold off so much to accommodate "Mega-Brew", can’t hang on to the Coca-Cola stake forever. It still bottles a portion of Pepsi’s drinks in Latin America (convenient, hey, that it knows something about soft drinks).
Should AB InBev set its sights on Coca-Cola (I give it three years, tops) it would be far from a straightforward deal, but they’ve proved they can do complicated. Also, it would trump the SABMiller takeover — Coca-Cola’s market cap is about double what SABMiller’s was.
For now, AB InBev’s priority is to slash debt. Financing the third-largest acquisition in history (according to the Financial Times) didn’t come cheap.