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Colombia: Grupo Empresarial Bavaria, South America's second-biggest brewer, is in preliminary talks with several of the world's top brewers to sell all or part of the beer business, in a deal that could be worth about $9 billion, an industry source said on Thursday, January 20. London-based brewer, SABMiller, is one of a number of international brewers looking at buying Grupo Empresarial Bavaria.
"It is true that they (SABMiller) are involved. But it is also true that probably almost every other big international brewer is involved as well," the source told Reuters. The Financial Times said earlier on Thursday that Colombian-based Bavaria could fetch about $9 billion (seven billion euros).
A spokesman for SABMiller, the world's third-biggest brewer, declined to comment. Bavaria was not immediately available. "SABMiller would be potentially interested but there is an auction going on for the business and there are also a number of international brewers interested," the source said, adding that SABMiller was not "closer than anyone else" to a deal.
At 0945 GMT, SABMiller shares were down 2.7 percent at 808 pence, the biggest fall on the FTSE-100 index of blue-chip UK companies. There was concern the brewer of Miller Lite, Castle and Pilsner Urquell beers might overpay.
Analysts at Dresdner Kleinwort Wasserstein said the reported $9 billion price tag was equivalent to 13.6 times Bavaria's enterprise value divided by its 2003 earnings before interest, tax, depreciation and amortisation. "This looks a high price, especially for a politically risky country such as Colombia," they wrote in a research note.
The global brewing industry has been consolidating for years as companies look to take advantage of economies of scale and to enter fast-growing emerging markets to offset more sedate levels of growth in developed countries.
SABMiller, which trails Belgium's InBev and U.S.-based Anheuser-Busch, has been on the acquisition trail since moving to London from South Africa in 1999, buying up U.S.-based Miller in 2002 and Italy's Peroni in 2003, and also expanding in Eastern Europe and China.
Grupo Empresarial Bavaria (GEB) is the largest beverage company in Colombia and the second largest brewer in South America, behind InBev, a company formed by the merger of Belgium's Interbrew and Ambev of Brazil. Its Águila, Cristal, Pilsener, and Atlas brands are industry leaders in Colombia, Peru, Ecuador, and Panama, respectively. GEB also markets soft drinks, fruit beverages, bottled water, and milk. GEB’s parent company is Bavaria S.A., listed on the Colombian Stock Exchange.
Bavaria, controlled by Colombian business magnate Julio Mario Santo Domingo, dominates the beer markets in Colombia, Peru, Ecuador and Panama after a 3-year acquisition spree. The group, which controls 99.5% of Colombia's beer market, had a net loss of 64.7 billion pesos in the third quarter of 2004 versus a profit of 86.6 billion pesos a year earlier, as interest expenses climbed 28 percent to 118 billion pesos. Net sales rose 9.8 percent to 1.16 trillion pesos. The company expects to report earnings before interest, taxes, depreciation and amortization of $740 million for 2004, Chief Financial Officer Mauricio Restrepo said on the company's third- quarter conference call.
"The Colombian market has very positive prospects and given Bavaria is the second largest brewer in Latin America behind InBev, it is very likely that a number of brewing companies will be very interested in Bavaria," said WestLB analyst Ben Maitland. "It's effectively an auction for the business (Bavaria). It's likely to take weeks, months in fact," the industry source said, adding Dutch brewer Heineken and U.S.-based Anheuser-Busch were also interested in Bavaria.
Analysts said InBev, strong in South America since it’s formed from Belgian group Interbrew buying Brazil's Ambev last year, was also likely to be interested.
A spokesman for Heineken declined to comment, beyond saying it was always looking at opportunities to expand. Heineken has a 20-percent holding in Brazilian brewer Kaiser. InBev and Anheuser-Busch were not immediately available.
SABMiller said earlier this month it would welcome merger talks with Molson Inc if the Canadian brewer's planned merger with U.S. beer maker Adolph Coors Co failed. A day later, however, Molson and Coors further sweetened their merger deal, making it less likely that SABMiller would be able to strike a deal.
22 January, 2005