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Interbrew buys AmBev and becomes world number one

03-Mar-2004

The biggest South American and European brewing groups have today announced a merger which will catapult them into the number one position in the global brewing rankings and further quicken the pace of industry consolidation.

The merger of Brazilian group Companhia de Bebidas das Américas (AmBev) with Belgium-based Interbrew comes as no surprise, with both companies putting out statements this week confirming that negotiations were underway. What was unknown was the precise nature of the deal under discussion, with the companies simply qualifying it as "significant".

Just how significant the deal was is clear from the fact that the combined InterbrewAmBev group will have a 14 per cent share of the global beer market, taking it ahead of long-time market leader Anheuser-Busch and second-placed SABMiller. Interbrew was previously the world's number three brewer while AmBev was number five.

The new group will have sales of €9.5 billion and a presence in 140 countries, It will focus primarily on three core brands - Interbrew's Stella Artois and Beck's and AmBev's Brahma - although its portfolio will also include a wide range of local and speciality beers.

Interbrew said that it expected to generate €280 million in synergies over the next few years through a combination of technical, procurement and other general and administrative cost savings, as well as commercial synergies such as the cross-licensing of existing brands.

The group will also have a very solid financial structure on which to build further growth, the company said, with a debt to EBITDA ratio of 1.4.

The transaction itself will take the form of share swap. Interbrew will issues 141.7 million new shares which will be exchanged for 100 per cent of Braco, one of three companies holding the majority of AmBev's shares. Interbrew will also take control of Braco's subsidiary ECAP, giving it 52.8 per cent of AmBev's voting shares. Interbrew will then buy up all the company's outstanding shares, giving it an 84.9 per cent voting interest and a 57.5 per cent economic interest in AmBev.

AmBev, meanwhile, will issue 9.5 billion ordinary shares and 13.8 billion shares to Interbrew, and will assume debt of $1.5 billion, in exchange for Labatt, its 30 per cent interest in Mexican brewer Femsa Cerveza and its 70 per cent interest in Labatt USA - effectively taking control of all the American businesses owned by the two groups.

The new company will be headquartered in Belgium, although AmBev will continue to manage the American businesses from Sao Paolo, Brazil.

If Anheuser-Busch's world dominance was built predominantly on the strength of one brand (Budweiser) and its number one position in two of the world's biggest beer markets (the US and China, where A-B holds a major stake in Tsingtao), InterbrewAmBev will have a much broader footprint.

Interbrew is Europe's leading brewer after a number of high profile acquisitions such as Beck's and Spaten in Germany and Whitbread in the UK, but also has a strong position in Asia, in particular China, where it has acquired a number of breweries in recent months. In North America the group owns Canadian brewer Labatt.

AmBev, meanwhile, is the undisputed Brazilian market leader with a 65 per cent market share, and is the leading beer maker in Latin America with operations in Argentina (77 per cent market share), Uruguay (99 per cent), Bolivia (99 per cent) and Paraguay (94 per cent). It has also recently begun expanding into Central America and the Caribbean, where Interbrew's chief European rival Heineken has been steadily increasing its presence and home to some of the world's fastest-growing beer markets.

AmBev's presence outside of Latin America has been minimal, however, and its brands will undoubtedly benefit from the international distribution power of its Belgian partner.

InterbrewAmBev will rank number one or two in more than 20 markets globally including Brazil, Canada, Russia, Ukraine and Germany, and will reach six of the seven fastest growing markets, representing 77 per cent of the expected global growth in industry volume, the company said.

Stella and Beck's drive Interbrew growth

Interbrew has also announced excellent figures for 2003, with volume sales growth of 6.3 per cent driven by Stella Artois (8.1 per cent) and Beck's (5.7 per cent).

But value sales were impacted by exchange rates - a factor which is likely to play an even greater role now that the company has exposed itself to the fluctuating currencies of Latin America through the AmBev deal.

Net sales rose by just 0.7 per cent to €7.04 billion, but would have been 6.5 per cent higher at constant exchange rates and excluding the impact of acquisitions and disposals. Operating profit, meanwhile, was 7.5 per cent higher at €1.5 billion, while net profits increased by a healthy 8.1 per cent to €505 million.

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