SABMiller to buy Grolsch for $1.2b

SABMiller Plc, the world's third- largest brewer, agreed to buy Royal Grolsch NV for 816 million euros ($1.2 billion), gaining a 392-year-old Dutch beer brand to sell in Latin America and South Africa.

Grolsch accepted a bid of 48.25 euros a share in cash, London-based SABMiller said. That's 79 percent more than the Enschede, Netherlands-based company's previous close.

The acquisition adds a business with annual sales of more than 300 million euros and gives SABMiller a higher-priced beer to sell in South Africa, where the company lost a contract to make Amstel lager for Heineken NV this year.

Mergers have gathered pace in the industry this year as brewers seek to cut costs and expand in markets growing faster than Western Europe.

"The deal is expensive," Marcel Hooijmaijers, an analyst at Landsbanki Kepler in Amsterdam, said in a note. Buying Grolsch is "smart" because SABMiller "completes its premium brand portfolio with a northern European brand", he said.

Grolsch shares soared 20.30 euros, or 75 percent, to 47.20 euros. SABMiller shares fell 38 pence, or 2.8 percent, to 1,306 pence.

"We see significant potential for the brand across Africa and Latin America where the premium sector is still in its infancy," Malcolm Wyman, SABMiller's chief financial officer, said on a conference call.

The potential for expansion into new markets justifies paying 84 percent more than Grolsch's average closing share price over the past month, he said.

'Considerable price'

"This is a considerable price" and a "knock-out" bid, said Gerard Rijk, an analyst at ING Wholesale Banking in Amsterdam. Rijk has a "buy" rating on SABMiller and a "hold" rating for Grolsch. The deal may spur Budweiser brewer Anheuser-Busch Cos to make an acquisition, he said.

SABMiller agreed last month to combine its US operations with Molson Coors Brewing Co, while Carlsberg A/S has teamed up with Heineken NV to make an offer for Scottish & Newcastle Plc, seeking sole control of assets in Russia.

Wyman said SABMiller could spend between $3 billion and $5 billion on acquisitions and stay within "comfortable" financial limits. He defined that as a debt to earnings before interest, taxes and amortization ratio of up to 3 times.

Wyman declined to comment on speculation that his company may make a bid for Scottish & Newcastle, trumping Carlsberg and Heineken. He said the Grolsch acquisition "had no particular bearing on any other deal we may look at".

Several offers

The London-based brewer expects to make a formal offer for Grolsch in December or January and complete the deal in the first quarter, Wyman said. The bid already has the support of shareholders who hold 37 percent of Grolsch's stock. SABMiller has not yet discussed the bid with other investors, he said.

SABMiller sees an "opportunity" for the Grolsch brand in South Africa, Wyman said. The company is trying to make up for local sales lost with the ending of a 40-year-old contract to make Amstel for Heineken.

It has forecast an impact of $40 million to $50 million on this year's earnings before interest, taxes and amortization from the loss of the contract.

Grolsch Chief Financial Officer Arjan Kaaks said there would be "no harm to employment levels" because of the deal. Wyman said SABMiller plans to use spare brewing capacity at Grolsch's plant to make its other brands.

Cost savings are not "the major driver" of the acquisition, though there will be buying and distribution savings, Wyman said.

Ab Pasman, Grolsch's chief executive officer, said the brewer received several offers and executives had not sought a buyer. SABMiller's bid was a "knockout", according to the CFO.

Wyman said SABMiller will work with Grolsch's existing distribution partners, adding it was "too early" to say whether the agreements would be kept.

The Dutch brewer has a distribution agreement with Anheuser-Busch in the United States.

Outside Grolsch's Dutch home market, where the brand holds the No 2 position behind Heineken, the beer is sold in the US, Canada, France, Australia, New Zealand, in the United Kingdom under license, and in Russia and Kazakhstan.

Bloomberg News

(China Daily 11/21/2007 page16)