(Bloomberg Opinion) -- Anheuser-Busch InBev NV would surely prefer not to give up a slice of its biggest growth business if it could afford to keep it all. Yet the Belgian brewer is considering selling a stake in its Asian operation via a public share offering, Bloomberg News reported Friday. The indebted group's recent moves to strengthen its finances perhaps didn't go far enough to support an ambitious growth strategy over the next few years.
AB InBev has struggled to grow out of the debt burden it took on with the $123 billion purchase of SABMiller in 2016. Net debt at June 30 was $109 billion, nearly 5 times trailing Ebitda. Third-quarter results were weak, and the company cut the dividend to give itself some breathing space. Getting leverage down to its pre-deal level of around 3 times Ebitda is going to be a slog.
The borrowings may be big but the company could live with them. The weighted average maturity of AB InBev’s debt is 13 years. The overall weighted coupon is below 4 percent. AB InBev’s colossal refinancing on Thursday, which raised more than originally planned, certainly helped.
But the obligations nevertheless curtail the scope for opportunistic M&A. Taking on more debt to pay targets demanding cash is hardly possible. Issuing stock at the AB InBev level is problematic. That would dilute the group’s dominant shareholders. What’s more, asset sellers may not want to receive payment in the shares of a company whose overall growth profile is diluted by its exposure to developed markets.
Asia is probably where AB InBev would want to buy. An initial public offering of its business there would help square the circle. Clearly, the proceeds – perhaps $5 billion in the first instance, Bloomberg News reported – would bring debt down a bit, and every little helps. The move would also create an attractive regional acquisition currency, as Bloomberg Intelligence has pointed out. It would also provide a source of additional cash if AB InBev needed to shore up its balance sheet in a crisis. These strategic benefits are worth something, and it's probably more than the cost of surrendering some of the upside in Asia by selling a stake to outsiders.
The question is valuation, which may be hard to pinpoint given that the Asian business's Ebitda -- forecast by Jefferies analysts to be $3.1 billion this year -- is a blend of quality Chinese assets and exposure to more mature markets like Australia. For the faster growing piece, China Resources Beer Holding Co is a possible benchmark. It trades on 15 times estimated Ebitda. Bernstein research reckons AB InBev's Chinese assets would warrant a higher multiple than that. The slower growing piece might be worth something more in line with AB InBev's own 12 times multiple, being ultra cautious.
Say it averages out at around 14 times and the Asian business would be worth $45 billion. That's 17 percent of the group’s current enterprise value, against a roughly 14 percent contribution to group Ebitda. Perhaps that’s too conservative. Jefferies a reckons 20 times multiple could be justified given the assets' profitability, implying a valuation of $60-$70 billion.
AB InBev could probably raise $5 billion easily through piecemeal assets sales. An Asian IPO could serve up the same amount, with a big gulp of strategic benefits.
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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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