Why Coca Cola is a deal but not Pilsner Urquell

Pilsner Urquell is an iconic brand but AB InBev’s CEO Carlos Brito is not interested in it. What comes to a surprise for many beer drinkers is not so amazing for investors who understand Brito’s strategy.

The proposed sale of Pilsner Urquell & Co. was announced in April this year after the mega deal of AB InBev and SAB Miller became known. The officially stated reason for the step was to achieve a quick agreement with antitrust authorities for the takeover. Furthermore the proceeds of the sale should help AB InBev to finance SABMiller’s £71bn purchase price.

Most analysts do not believe in this reasoning. While AB InBev is strong in many markets of the world, Eastern Europe is in comparison a white spot for the world’s leading brewing group. In December 2009 Brito already sold all of his Eastern European breweries at a price of $2.23 billion including debt to raise money for the purchase of Anheuser Busch. Buyer was investment group CVC Capital partners, who formed the new company Star Bev, which in turn was sold in 2012 to Molson Coors Brewing Company for $3.54 billion in debt and equity.

The former SABMiller breweries, which are on sale now, have only a 15% market share in Eastern Europe, making it the region’s third-largest brewer behind Carlsberg and Heineken, according to Euromonitor

Therefore Brito could not expect larger antitrust hurdles when buying brands like Pilsener Urquell (Czech Republic), Tyskieand Lech(Poland), Dreher(Hungary), Ursus(Romania) and Topvar(Slovakia). The same was also true for SABMiller’s Western European breweries, where AB InBev accepted Asahi Group Holdings offer in May to buy the Peroni, Grolschand Meantimebeer brands for €2.55 billion ($2.9 billion).

But if it is not antitrust regulations, what is then the true reason for the sale of such strong brands like Pilsner Urquell or Peroni?

In fact, Carlos Brito has never really been interested in brands but merely in growing markets. When buying SAB Miller, Brito was targeting the fast growing markets in Africa und partly also in Latin America. This is where a fast future growth can be achieved. Long term investments in brands in saturated markets are too costly and take too much time for AB InBev. Brito leaves those investments to traditional brewers like Molson-Coors or Asahi.

But what will be next step for him? In terms of sizeable breweries in growing markets there is not very much left over. The soon to come sale of state-owned Vietnamese brewery SABECO might be a little bit too early for AB InBev after the recent mega deal with SABMiller. Another interesting pick might be the Castel Group with its breweries in Africa, once the Castel family is willing to sell. But there might be some headwind from antitrust authorities, because of the already large market share after the SAB Miller deal. Other interesting breweries might be Polar or Regional in Venezuela, once the political situation stabilizes in the country. Also Thailand could be an attractive market for AB InBev.

But Brito might eye already larger targets, as the SundayTelegraph pointed out. The Coca-Cola Company, with a stock market capitalization of $176 billion, gives enough room for further speculations. PepsiCo also has been a rumored target in the past.

After the transaction with SAB Miller, AB InBev had to terminate bottling contracts in more than a dozen markets, which could be revitalized after a Coke deal.These synergies are attractive enough to justify another mega merger.

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