The long awaited acquisition of SAB Miller (SAB) by Anheuser Busch InBev (BUD) announced late last year created two interesting pro forma situations. The deal, expected to close in the second half of 2016, will combine the two largest global brewers and create an unrivaled player with strong pricing power in an increasingly consolidated global industry. It will also transform Molson Coors (TAP) into a stronger regional competitor following the acquisition of certain SAB assets that must be sold for anti-trust reasons.
Starting with BUD, we think the stock ought to grow nicely over the next several years as the true earnings power of the new company is revealed. Part of the gains will come from improving the underlying profitability of SAB, as operational control of its assets is transferred to BUD’s highly regarded management team led by CEO Carlos Brito. Another part will come from the capture of deal-related cost and revenue synergies, as duplication is eliminated and BUD’s global brands like Budweiser, Corona, and Stella are rolled out to legacy SAB markets in Africa and Latin America. Finally, the rest should come from financial engineering as BUD’s under-levered balance sheet is monetized to help finance the transaction. We also think the new company will likely command a higher valuation as SAB’s emerging market exposure will be accretive to top line growth over time.
From Daniel Loeb (Trades, Portfolio)'s first quarter 2016 shareholder letter.
