Beer and Dairy Deals Exemplify Food Industry Trends

Caifu Magazine |
Posted: January 13, 2017 | Updated: March 16, 2017 at 2:44 pm

9

Industry consolidation and healthier foods are the most recent trends in the food and beverage industry. According to the Food and Beverage Report Q2 2016 published by SDR Ventures, an investment firm in the United States, companies that find ways to offer existing products to new customers are currently in favour with investors. The report also highlights mergers and acquisitions being driven by a demand for healthier, more functional, simpler, and allergen- free ingredients. Recent notable megadeals displaying these trends include Anheuser-Busch InBev’s all-cash takeover of competitor SABMiller plc for $104 billion (all figures in U.S. dollars unless otherwise noted), and French dairy company Danone’s all-cash acquisition of American organic food company Whitewave for $12.5 billion.

The AB InBev and SABMiller $100 Billion-plus Saga

On September 16, 2015 Anheuser-Busch InBev (AB InBev) and SABMiller addressed media speculation and officially acknowledged that AB InBev, the world’s leading brewer by revenue, had approached SABMiller’s board of directors about a possible takeover. Last year, AB InBev posted revenue of $43.6 billion, selling Budweiser, Corona, Stella Artois and other recognizable brands to consumers. Headquartered in Belgium, the beer company is publicly traded on Europe’s Euronext stock exchange. As of December 2015, AB InBev’s 2015 annual report revealed a market share of 45.8 percent in the United States, 42.2 percent in Canada and 18.6 percent in China.

AB InBev’s target, SABMiller, is the world’s second-largest beer company. Its revenue in the year ended March 31, 2016 was $24 billion. With origins in South Africa, the London-based company trades actively on the London Stock Exchange. Global brands in the SABMiller cooler include Peroni Nastro Azzurro, Miller Genuine Draft, and Pilsner Urquell. The beer company also has a division that bottles drinks for Coca-Cola.

Following the takeover announcement in September 2015, the companies spent nearly two months hashing out a deal that satisfied both sides. During the hectic period, AB InBev made at least ve bids, with proposals ranging from 38 pounds to 45 pounds per SABMiller share.

10In November 2015, following a proposal of 44 pounds per share, AB InBev said of the transaction, “It would create a truly global brewer, drawing on a similar heritage and shared passion for brewing and commitment to quality.” In the same statement, AB InBev summarized why it believes the merger makes sense: “Given the largely complementary geographical footprints and brand portfolios of AB InBev and SABMiller, the Combined Group would have operations in virtually every major beer market, and provide more choices for beer drinkers, including global and local brands, in new and existing markets around the world.”

SABMiller continually rebuffed AB InBev’s advances until receiving the 44-pound offer, which was a premium of approximately 50 percent to SABMiller’s closing share price since the announcement of the possible takeover. The proposal also offered an alternative plan: shareholders can choose to receive a small cash portion and retain stock of the newly combined company rather than receive only cash. Based on the exchange rates at the time, the transaction was valued at approximately $107 billion.

US$12.5 The two companies then worked together to gain regulatory approvals around the world, but the deal was inconvenienced by the unexpected result of the Brexit vote, which occurred on June 23, 2016. The value of Britain’s currency declined sharply and the cash o er was no longer attractive to SABMiller shareholders, who were set to vote on the merger after regulatory approvals were obtained. In July 2016, AB InBev submitted a final, revised offer of 45 pounds per share in an attempt to appease shareholder unrest. The all- cash value was approximately $104 billion. Even with the poor exchange rate, this is the largest deal in the beer industry. The SABMiller board unanimously accepted the new proposal.
On the day of the final offer, AB InBev received conditional approval for the merger from China’s Ministry of Commerce. China’s condition was that AB InBev divest SABMiller’s 49 percent interest in China Resources Snow Breweries Ltd. (CR Snow) to China Resources Beer Holdings Co. Ltd, which owns the remaining shares of CR Snow. China was the last regulatory jurisdiction required to satisfy the preconditions of the deal. Shareholders from both companies vote to approve the merger on September 28, 2016. The companies anticipate closing the deal in mid-October 2016. (Shareholdershad not voted at the time of writing this article.)

Danone Increases Healthy Products with Whitewave

11Danone announced on July 7, 2016 that it will acquire Whitewave Foods Company in an all-cash transaction worth $12.5 billion. Danone, based in Paris, is best known for its yogurt brands, including Activia and Oikos. The multinational company’s portfolio also includes bottled water and nutrition. It generated sales of 22.4 billion euros in 2015 and is listed on the Euronext Paris Stock Exchange.

Whitewave, listed on the New York Stock Exchange and headquartered in Denver, generated $4 billion in sales last year. Even though Danone is a competitor in the traditional consumer packaged food segment, Whitewave is better known for its natural and organic foods.

In the July 2016 statement about the acquisition, Emmanuel Faber, Danone’s Chief Executive Officer, said, “This unique combination positions us better to address tomorrow’s consumer trends and represents a great opportunity to change the ambition of our plan for an Alimentation revolution and to accelerate our path towards strong sustainable and pro table growth by 2020.” The acquisition will immediately double the size of Danone’s business in the United States.

Danone has come under criticism for financing the entire deal with debt. The credit ratings firm Moody’s Investors Service even initiated a rating review to see if Danone needs to be downgraded from BAA1, which is judged to be highest level of medium-grade and subject to moderate credit risk. In September 2016, following the rating review, Moody’s decided to make no changes.

“The decision to con rm Danone’s ratings at the current Baa1 level reflects our expectation that the company’s key credit metrics will recover to a level consistent with the rating category within two years from closing of the acquisition. Whitewave is a good strategic fit for Danone and will offset any temporary credit metric weaknesses,” said Paolo Leschiutta, a Moody’s Vice President Senior Credit Officer and lead analyst for the issuer. The acquisition is pending approvals from regulators and Whitewave’s shareholders, the latter of whom will vote on the deal in October 2016. Moody’s anticipates no significant issues in obtaining approvals and the companies expect to close the deal at the end of the year.

China’s Aluminum Giant Expands to US with $2.3 Billion Acquisition

In August 2016, Cleveland-based Aleris Corp. announced it will be acquired by Zhongwang USA LLC, an investment company majority-owned by Zhongtian Liu. He is the founder and Chairman of China Zhongwang, the world’s second largest extruded aluminum manufacturer. “This acquisition is an international expansion to establish a complementary business foothold,” Liu said. The “complementary business” Liu refers to is Aleris’s aluminum technology in the automotive and aerospace markets, which Zhongwang lacks. The companies will operate independently; they anticipate closing the deal in the first quarter of 2017.

Walmart to Acquire Jet.com to Compete in E-Commerce Space

In August, 2016, less than a year into Jet.com’s launch, Walmart announced its plan to acquire the e-commerce startup. Jet.com’s valuation was $1 billion in November 2015, only four months after inception. Fast forward nine months and Walmart is bidding $3 billion. Marc Lore, founder of Daiper.com and Jet.com, set up Jet. com to challenge Amazon. Walmart took notice; the big box store’s CEO, Doug McMillon, said: “We’re looking for ways to lower prices, broaden our assortment and offer the simplest, easiest shopping experience because that’s what our customers want. We believe the acquisition of Jet accelerates our progress across these priorities.”

12Oracle Buys Netsuite for $9.3 Billion In Cash

In July 2016, software giant Oracle bolstered its cloud technology through the acquisition of Netsuite, the world’s first cloud company. Oracle, founded on 1977, and Netsuite, founded in 1998, share a long history; Larry Ellison is the co-founder of both companies and still retains shares in both. Bloomberg reported Ellison was not involved in the negotiations of the deal.