| Sun 6 Jul 2003, 10:29 | | SABMiller juggernaut continues its attack |
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SABMiller juggernaut continues its attack
But analysts think it should fix what it has before buying more, writes Marcia Klein
Seeking out acquisitions has become something of an obsession for brewing group SABMiller. This week it announced a strategic investment in Harbin Brewery, making it the leading international brewer in China, a burgeoning market with growth in consumption of over 6% a year.
This deal follows closely on the à 246-million acquisition of 60% of Birra Peroni, Italy's number-two brewer, and the $132.8-million acquisition, through its Indian subsidiary, of 50% of Shaw Wallace.
But these and other investments in Central America pale against the $5.6-billion acquisition in July last year of the floundering Miller Brewing in the US.
This week SABMiller announced it had bought 29.6% of Harbin, whose brand is China's oldest, from the China Enterprise Development Fund for $87-million in cash, through a newly created SABMiller subsidiary, Gardwell.
SABMiller entered China in 1994 and, through its joint venture partner China Resources Breweries, has 30 breweries in nine provinces . Total volumes were over 27 million hectolitres at end-March, more than it produces in South Africa. Harbin sells 10.4 million hectolitres annually.
While China is no doubt strategically important to SABMiller, analysts consider it a sideshow considering the problems the group has in the US. Miller has not been what SAB expected.
In the last year, volumes were down by almost 4% while its major competitor, Anheuser-Busch, which makes Budweiser, grew volumes by over 5.5%, soaking up Miller's market share.
SABMiller is fully aware of the problems - which CEO Graham Mackay has admitted "run deep" - and recently brought in former South African CEO Norman Adami to sort it out. The annual report, released last week, indicates nothing much is expected from Miller for two to three years.
Analysts are concerned that, considering the depth of the problems at Miller, top management should perhaps be bedding its acquisitions down and trying to extract value from them rather than pursuing more.
In the company's annual report, Mackay says SABMiller's strategy is to drive volume and productivity, and "optimise and expand our existing positions through acquisitions".
He also mentions growing brands in the international premium beer market, which saw it bring Pilsner Urquell and Miller Genuine Draft to South Africa.
But the strategy to continue to acquire is questionable, some say. One analyst says market concern is that the return on invested capital, especially in Central and North America, "is way behind our initial estimates".
In addition, SABMiller is facing tough competition in a number of markets - notably from Pepsi, Anheuser-Busch and Heineken - that it seems to have underestimated.
The analyst says Anheuser-Busch is muscling in on areas where Miller was dominant, and Miller's profit is a third less than forecast. He says the most recent deal in China is an attempt to block competition from Anheuser-Busch. The competitive situation is exacerbated by Miller's tenuous situation.
Nevertheless, SABMiller remains cheap. At R51.20, it has lost 27% of its value in the past year and is at a significant discount to its European peer group, which the analyst says reflects the positive effect of the rand's strength being offset by the group's "considerable challenges".
It remains the world's second-largest brewer, active in over 40 countries, and with a turnover of 9.1-billion. But shareholders are eager for the group to extract value from its investments, no matter how big they are.
