Frog Jumps

22072019---abi

Image source: Mark Heider, Mariyana M, Mirror-Images, Schwabenblitz - Shutterstock

What's going on?

On Friday, the world’s largest beer brewer AB InBev wet its whistle with the sale of its Australian business, Carlton & United Breweries, to Japanese rival Asahi for $11 billion.

What does this mean?

AB InBev is still drinking to forget its botched attempt at an initial public offering of its Asian subsidiary this month. This sale will allow the company to pour some cash into its business and use it to see off some of its $100 billion debt.

Asahi – like several Japanese companies – has recently been looking overseas for growth. Its largest-ever acquisition will make it the world’s third-biggest brewer and allow it to fill Australian glasses with Budweiser and its own eponymous beer. And since this wasn’t the first time Asahi had offered to buy Carlton, negotiations went down smoothly.

Why should I care?

For markets: Investors toasted AB InBev’s shares.

Investors had sold off AB InBev’s stock to wash away the taste of its canceled Asian listing. Without fresh cash to reduce its debts, investors seemed to see it as a riskier investment. But with the new cash-infusing deal penned on Friday, investors gulped down the company’s stock, which rose 6%. Asahi, on the other hand, will be picking up its tab shortly: in addition to a planned $2 billion sale of new shares, it aims to cover its new purchase by selling new bonds and taking out another loan.

The bigger picture: Budweiser is still hopping.

AB InBev says it may still press ahead with its Budweiser Asian listing, but only if it can secure investor demand at a high-enough valuation. The brewer’s Australian segment is growing more slowly than the rest of its Asian business, so a sale would cut dead weight and perhaps make it more attractive to investors. And if not, AB InBev might look for a private equity buyer. Those firms are sitting on $2 trillion of cash, and they’ve been buying up public companies as though the tap’s about to run dry. Maybe it is…

Originally posted as part of the Finimize daily email.

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