(Bloomberg Opinion) -- Foster’s: Australian for debt reduction. That may not be the advertising strapline owner Anheuser-Busch InBev NV would choose for the lager, but it should be. On Friday, it agreed to sell Carlton & United Breweries, the maker of Foster’s and Victoria Bitter, to Japan’s Asahi Group Holdings Ltd. for $11.3 billion.
The sale proves that AB InBev has other ways to make a dent in its more than $100 billion of borrowings after it embarrassingly pulled the initial public offering of its Asian arm last week. Shares of the Leuven, Belgium-based brewer rose 5% on Friday.
Asahi is paying a hefty price, almost 15 times the business’s $760 million of Ebitda in 2018. By comparison, Asahi, Kirin Holdings Co. Ltd. and Sapporo Holdings Ltd. trade on an average of about 11 times. While the brewery is highly profitable, it is growing at a slower rate than AB’s other operations in the region.
The IPO would have raised up to $10 billion. So the sale effectively does the same job in terms of cutting borrowings. According to analysts at Jefferies, net debt should fall to $87 billion at the year-end. That would equate to 3.9 times Ebitda, allowing AB InBev to meet a key debt-reduction target a year early.
There will of course be the loss of earnings, but in the context of the AB InBev’s $22.1 billion of Ebitda in 2018, that should be easily managed. Duncan Fox, an analyst at Bloomberg Intelligence, says the proceeds could quickly be reinvested in businesses in faster-growing Asian markets such as China or India. That might offset the progress on deleveraging, but would be no bad thing.
By shedding the Australian business and adding faster growing units, AB InBev could make its Asian division more attractive to investors. They balked at the valuation – about $60 billion – last time.
On Friday, the group said that the IPO was still a possibility. But it’s hard to see why investors would be willing to pay a higher price if it came back to the market in its current form.
Rejigging the Asian operation – by, for instance, offloading the Korean and Japanese units – would make it more focused on China and other faster-growing markets. That might persuade investors to ascribe a higher value to the unit next time round.
In AB InBev’s case, spilling some of the Amber Nectar isn’t such a bad thing.
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Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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