Bankers are in early discussions about a financing package to support a potential buyout of AB Inbev’s Central European assets. The Belgian brewer is believed to be looking to sell the assets as a whole and reports so far suggest that up to five private equity bidders including Cinven, Warburg Pincus, CVC, TPG and KKR are among those looking at the unit.
So far Inbev has declined to expand on its divestment plans, though they are thought to include 11 brewers across countries including Bulgaria, Croatia, the Czech Republic, Hungary, Montenegro, Romania and Serbia.
Inbev holds a number two position in Eastern Europe behind Carlsberg – meaning there is likely to be keen interest. The region has shown growth in recent years, though it has suffered as the economic downturn has hit consumer spending. Volumes are likely to shrink this year.
That the group is looking to sell the assets as a whole is likely to favour private equity bidders. The most obvious trade buyers – namely Heineken, SABMiller and Carlsberg – are thought to prefer a piecemeal sale that would both complement their existing operations and ease expected competition concerns. Outside of these bidders, Turkey’s Efes is a potential trade bidder that could conceivably buy the assets in their entirety.
The sale process is said to be at a very early stage, with a price tag in the US$1.5bn to US$2bn range so far suggested. For private equity bidders, bankers are said to be considering senior debt of about €600m with discussions ongoing on the potential viability of a subordinated tranche.
For a buyer with sufficient liquidity, it might be cheaper to bulk up on equity rather than pay for subordinated debt. This is the route that KKR took in its recent acquisition of Oriental Brewery in Asia – also an AB InBev disposal.
In that deal, there was a clause giving AB InBev a call option on the assets at a predetermined price. AB InBev, which is currently in the process of reducing its debt following the acquisition of Anheuser-Busch, is expected to look for a similar option on the European assets which would, analysts say, mean it favours a private equity bid.
However, though AB Inbev may prefer a private equity sale, the question remains whether there is enough European debt capacity to support a leveraged bid.
The European market tone has undoubtedly improved as the quarter has progressed, but volumes are still light and retail bid is thin on the ground.
Moreover, the acquisition of Oriental brewery in South Korea only provides limited comfort for European underwriters: while the US$825m facility supporting the US$1.8bn LBO cleared the market with some ease, it was able to rely on strong domestic bid, with KDB alone providing a W450m commitment.
It is unlikely a loan sold for Eastern European entities could rely on similar backing, given that most the region’s banking sector is both foreign owned and suffering from severe ongoing recessionary fall-out.
Selling a bridge to the bond market could also be a tough task given that the various jurisdictions involved could complicate high-yield documentation. That said, at least the market is considering funding a private equity sale, suggesting Europe’s frozen leverage markets are finally starting to thaw.