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SABMiller goes for Grolsch in premium pay-off bid

By Neil Merrett , 19-Nov-2007

SABMiller has today received the support of Koninklijke Grolsch's management to move ahead with a proposed €816m acquisition of the Netherlands-based brewer's operations.

The two brewers said they have reached a conditional agreement over the purchase, as part of a bid by SABMiller to expand its portfolio of premium beer brands, which are increasingly sought after by a more affluent global consumer.

 

 

 

SABMiller says it intends to use its international brewing network to push the brand into new markets like Africa and Latin American, which are expected by the group to become major regions of growth for sales of premium beer brands.

 

 

 

The brewer added that the purchase would also allow it to target more established growth areas like Central and Eastern Europe as well, in a bid to enhance the brand's global potential.

 

 

 

Upon successfully completing the acquisition, SABmiller said it expected Grolsch's existing Enschede brewery to be capable of stepping up production volumes to meet the expected hikes in demand.

 

 

 

The 3.8m hectolitre capacity plant, which was constructed in 2004, will also allow the company to brew its existing beer brands in the Netherlands.

 

 

 

However, the company said that it currently planned no existing changes to distribution in markets like the US, UK, Canada, Australia and some smaller markets for the product.

 

 

 

As part of any potential takeover deal, SABMiller said it will guarantee both the jobs and pension rights of Grolsch's existing employees as it aims to leverage the group's know how to ensure increased production output.

 

 

 

The full-terms of the agreement are expected to be set out by January 2008, which are then to be discussed by Grolsch at an extraordinary general meeting for its shareholders.

 

 

 

Besides production of Grolsch's namesake lager brand, which accounts for 90 per cent of the brewer's sales, the company also manufactures the Premium Weizen, Spring Bock, Autumn Bock and Amsterdam beer brands.

 

 

 

However, the Grolsch lager brand remains the key factor driving the acquisition as premium beer brands, particularly from European makers, dominate global beer sales.

 

 

 

Over the last five years sales for products deemed as both premium and super premium beers have grown at an average rate of eight per cent per annum, about double that of discounted beer brands, says market analyst Canadean.

 

 

 

The analyst added that the trend for higher-value beers had been driven by increased disposable income amongst consumers.

 

 

 

Canadean's latest industry report found that major brewers like Heineken and Carlsberg were therefore moving to extend their product portfolios accordingly.

 

 

 

While Heineken has increased production on brands such as Amstel, along with acquiring labels such as Zipfer and Edelweiss, Carlsberg in 2004 launched its Semper Ardens range aimed at the premium market.

 

 

 

Even Anheuseur Busch, manufacturer of Budweiser, its self-proclaimed "king of beers", has played up the group's focus on licensing premium beer brands from global brewer InBev and bitter Czech Republic-based rival Budejovicky Budvar.

 

 

 

Speaking at an investor's conference in September, company chairman August Busch IV said that the future of the US beer industry was looking optimistic in regards to domestic sales growth.

 

 

 

He attributed the growth to new developments in how US consumers were drinking beer in the country, particularly in their demand for imported brands and specialist craft beers. Busch added that company was therefore amending its portfolio accordingly to meet this demand.

 

 

 

News of the deal appears to have already boosted SABMiller's prospects.

 

 

 

Standard and Poor added today that its rating and outlook for the brewer would remain unchanged even if the move went ahead successfully.

 

 

 

The financial service provider said that SABMiller's annual cash flow of $700m (€477m) would allow the company to remain comfortably in line with expectations despite the cost of the purchase.

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