THE world’s two biggest brewers, who between them control half of the industry’s profit, have agreed to a $106 billion tie-up following years of a courtship dance before their families agreed on a number.
Belgium-based Anheuser-Busch InBev will buy rival SABMiller, the British-South African brewer having put up a show of coyness as it held out for a higher offer.
The suspense was understandable—the deal would be the industry’s largest ever, making the resulting entity the world’s largest consumer-staples company by earnings, Bloomberg reported Tuesday. Essentially, every third beer sold globally will come from its brewhouses, and according to analysts will give it either the number one or two positions in 24 of the world’s 30 biggest beer markets.
AB Inbev offered 44 pounds a share, acceptable to SABMiller which had angled for closer to 45 pounds.
The two brewers will now seek to formalise the nuptials, with AB Inbev liable for a $3 billion fine if it fails to get the necessary approvals from the “elders” and myriad relatives—regulators and shareholders.
SABMiller is well recognised in Africa for brands such as Castle, Mosi, Trophy, Kilimanjaro, Nile Gold and Redds, with a presence in 12 African countries—including Nigeria and South Africa—and from which it derives a third of its revenue.
Its this foothold on the continent’s beer market—the fastest growing in the world— including its growing middle class that has made it so attractive to its rival, which is looking to branch out of its core but weakening Americas market.
That kind of cash agreed on would solve several of Africa’s more urgent problems, some 15 of which we list here:
1—For starters, the amount would be Africa’s seventh largest economy, at par with Morocco, and with only Nigeria, South Africa, Egypt, Algeria and Angola having economies with a higher nominal GDP. It is also larger than the combined GDP of Africa’s smallest 25 economies.
2—Recently, Kenya’s nearly 300,000 public school teachers boycotted class for one month, in pursuit of higher pay. Kenyan authorities refused to barge, arguing that the country’s instructors account for the highest wage bill of any civil servants at 2.9% of GDP, and that the sought-for increase would see teachers paid $2.9 billion (291 billion shillings) annually, the president said. With the AB Inbev cash, the government would pay its teachers the new terms for 36 years.
3—South Africa’s power utility Eskom supplies 95% of electricity to the continent’s most industrialised nation, but has struggled to meet demand, leading to about 100 days of managed blackouts this year and wider hits to the economy. Part of this is due to years of underinvestment. To address this long-term, as many as eight nuclear reactors have been considered, which would cost up to $100 billion. The country also plans to buy power from Congo’s Grand Inga dam, which is yet to be built but has a $100 billion price tag. Either of the projects would be fully funded by the beer tie-up.
4—DR Congo president Joseph Kabila is thought to be planning to vie for a third term in elections set for next year. To add to the internal opposition to this, external donors have also weighed in. In response, Kabila said the donors were violating Congo’s sovereignty, but also asked them to fund the elections, at a cost $1.2 billion. Even accounting for a 20% appreciation in costs every election, the AB Inbev cash would pay for more than 50 votes - enough to bring the country to the level of democracy in the US, which held its first four-year ballot in 1788-89 - or 56 American elections ago.
5—Neighbouring Burundi, whose leader successfully pushed through a third term recently, has kicked out Belgium’s ambassador, though it gave no reasons. But it was not lost on observers that the former colonial power said it would hold back nearly $70 million in aid—vital to Burundi’s $2.7 billion economy. AB Inbev’s beer money would loan the country this aid cash at least 1,500 times over, and guarantee itself free drinks and several new patrons in the process.
6—Zambia’s economy has taken a battering this year, on the back of a debilitating power crisis and with prices of copper—its mainstay export—in free fall. Its currency is also the world’s worst performing, having plunged 46% this year. Last week, the country’s finance minister laid out a budget of $4.5 billion, or 23 years of funding by AB Inbev.
7—Zambia’s neighbour Botswana has one of the continent’s best managed economies, but even it has not been spared, as revenue from all-important diamonds shrinks, and a drought hurts agriculture. During the good times the southern African country however built up a nest of $8.55 billion in foreign reserves, and which it says the “time has now come” to use them. The beer takeover cash would swell this pot 12 times.
8—Ethiopia last month launched sub-Saharan Africa’s first light rail system to deep national pride and wide global interest. The 32-kilometre line cost $474 million, with China footing 85% of the bill. For the cash the two brewers are shaking hands on, the region could have another 218 light rail systems and solve its public transport crisis for generations.
9—Staying with Ethiopia, its flag carrier in June reported $175 million in net profit, or more than the rest of Africa’s suffering aviation industry combined. Its two key rivals—Kenya Airways and South African Airlines posted a combined $457 million in losses, and are currently being kept alive only by taxpayer drips. AB Inbev would pay off this figure and file it under the senior management allowances entry.
10—For the first time in 25 years, we this year had an idea of Somalia’s economy after the International Monetary Fund (IMF) conducted its Article IV consultation, essentially a state-of-the-money country review. Conducted annually for most countries, it last took place in Somalia in November 1989. Its current GDP is estimated at $5.7 billion, with external debt being 93% ($5.3 billion) of that figure. The two beer firms would hardly notice if they paid it off.
Tourists in Marrakech, Morocco
11—There has been a lot of buzz around Africa’s natural gas finds after Egypt last month discovered a huge field off its coast—said to be the largest ever in the Mediterranean sea. Estimated at 30 trillion cubic feet, it is still less than half of Mozambique’s estimated 75 trillion cubic feet of gas, which would make the country a top three global gas exporter in the next 10 years and completely overhaul its economic fortunes. Its value is estimated at $15 billion, meaning AB Inbev could lend it the cash in exchange for free energy for the natural life of the fields.
12—Nigeria, Africa’s biggest economy, has cash reserves of about $40 billion, nearly all from oil. And even this is fast shrinking after oil receipts declined 67% in less than a year as prices tanked. With SABMiller brands in the continent’s most populous state including Hero and Trophy premium lagers, it is not beyond the realms of reality to explore a beer-for-oil deal. Serious.
13—Africa’s energy deficit is accepted as its Achilles Heel, with over 600 million people having no access to grid power. The new president of the African Development Bank, the dapper bow-tie dorning Akinwumi Adesina, has announced a “New Deal for Energy in Africa” to set his term rolling, where he will mobilise $55 billion of investment to plug the deficit by 2025. Given the takeover is triggered by the allure of the African market, perhaps the two brewers could lend him the money?
14—Ghana, which like Zambia has seen hard economic times, has just sold $1 billion of Eurobond with a tenure of 15 years, a sale that it struggled to find buyers for as its risk profile deepened. As such it will pay a staggering 10.75% in interest, almost beating the purpose. Oh, for a credit line from a couple of beermakers. And yes, SABMiller is present in the Ghanaian market with stout-sounding brands such as Stone Lager.
15—Tourism has not had a good time on the continent, with terrorism, revolutions and even xenophobia combining to sink the numbers. Already on the periphery of international tourism—just 5% of arrivals are to the continent, the region still managed to pocket $36 billion in receipts last year. One starts to suspect an AGM associated with the would-be beer newlyweds might just generate as much worth of economic buzz—that is counting even the feel-good these sort of things are said to cause.