AB Inbev's New Chairman Should Start a Pub Brawl

(Bloomberg Opinion) -- AB InBev has picked a difficult time to lose its head brewer. 

Olivier Goudet is stepping down from his role as chairman a year early, Anheuser-Busch InBev NV said Wednesday.

It’s understandable that he would want to spend more time on his roles as managing partner and Chief Executive Officer of JAB Holding Co. Chairman Bart Becht is retiring this year, saddling executives with more responsibility in the wake of a growth streak fueled by acquisitions, including of Pret A Manger. There’s also a pressing need to entrench the recovery at Coty Inc., in which it holds a 40 percent stake.

Even so, the change comes at a delicate time.

AB Inbev's New Chairman Should Start a Pub Brawl

True, its performance improved in its most recent quarter. But it faces a long and difficult path to stability: it must deliver growth in U.S. beer sales, deal with challenges in emerging markets, and bolster the top line by increasing sales volumes. The latter requires stepping away from a previous focus on raising prices and cutting costs. 

Complicating matters is a $102.5 billion debt pile, stemming primarily from its purchase of SABMiller Plc in 2016. S&P Global Ratings on Tuesday said it may cut AB InBev’s A minus rating after its assessment of leverage proved “significantly worse” than expected. I’ve argued that the move in October to halve the dividend may not be enough

Investors should be mindful that the $133.3 billion of goodwill on AB InBev’s balance sheet and $44.8 billion of intangible assets together exceed its market capitalization. The company says testing by its auditors showed it wasn’t exposed to impairment risk at the end of 2018. But the sheer scale of these figures does leave it particularly vulnerable to a downturn in its performance.

AB Inbev's New Chairman Should Start a Pub Brawl

The company has clearly veered off of its previously successful course, so the selection of a new chairman – alongside the appointment of new board members at next month’s annual meeting – is an opportunity to implement a fresh approach.

But to bring that perspective, Goudet’s replacement must be an external appointment, and and shouldn’t be just a representative of one of its big shareholders.

Indeed, one of the new chairman's most pressing tasks will be to manage the diverse interests represented on the board. These include private equity firm 3G Capital Partners, the Santo Domingo family and tobacco maker Altria Group Inc.

AB InBev needs to appoint a strong individual who can do what is best for all shareholders – not just those with large positions and board seats.

To get back on right track, the company’s previous strategy of bold acquisitions won’t work. Deals should be firmly off the table until leverage is under control, and investment in brands to bolster volume growth needs to rise. The chairman should insist on this, even if it as odds with the culture that AB InBev's board and management had enforced for years.

Getting the job done could require a further dividend cut or a capital raising. If so, then juggling the interests of the large investors will become even more difficult. It’s crucial that the new chairman is up to the task. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

©2019 Bloomberg L.P.