Thursday, October 15, 2009

Maybe You Prefer Pisner Urquell or Budweiser (from České Budějovice!) or Klášter, But István Szoke Thinks Staropramen Is a "Hidden Gem."

The MoneyMeisters (I can not call them breumeisters) at Anheuser Busch InBev are shuffling their portfolio.  They are selling to private equity investors, CVC, their eastern and central European operations and distribution system for $2.2 billion.  Matthew Curtin judges "CVC is paying around nine times last year's Ebitda assuming it hits its return targets, triggering another $800 million payment to ABI. CVC will fund the deal with $1 billion in debt raised from a variety of banks. The three times debt to Ebitda is well below the six times-plus multiples typical during the boom."  EBITDA is earnings before interest, taxes, depreciation, and amortization.  It is an operating cash flow approximation that is often used in valuations. Lex in the Financial Times adds, "Evolution Securities estimates $2.23bn represents about eight times 2009 earnings before interest, tax, depreciation and amortisation. That is some way below the 10 times-plus of big boom-era beer deals but for AB InBev it is respectable enough, given the potential extra $800m payments."

Matthew Dalton fills out the price: "AB InBev will receive $1.62 billion in cash for the Central and Eastern Europe assets. AB InBev will also receive a $448 million unsecured deferred payment obligation from CVC with a six-year maturity that can be extended 2 years, paying interest at between 8% and 15%. Finally, AB InBev will get $165 million in minority interests."

He tells us "The operations being sold are located in Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Montenegro, Romania, Serbia and Slovakia."  CVC gets to "brew and/or distribute Stella Artois, Beck's, Löwenbräu, Hoegaarden, Spaten and Leffe -- AB InBev's main brands in Europe" in those countries.  They acquire, among other brands, Staropramen.

InBev wants to focus on big brands in big countries.

But how good a deal is it for the buyers?  Yes they are paying less than the heady multiples of the bubble years. It looks like they have been clever in structuring it.  Interestingly, according to Martin Arnold and Philip Stafford, "István Szoke, head of CVC’s new central and east European buy-out team, told the Financial Times that Staropramen was 'the hidden gem' among the assets."

The deal turns financially on buying at the bottom and an eventual recovery in revenues as the local economies recover.  Mr Szoke told FT, "We think we are buying this business at somewhat of a trough, as we expect the [east European] region to recover and grow, which will benefit the top line of the company." The Czech Republic, a world leader in beer consumption, is like the caboose on a train in the globalized economy.  “We were surprised by how hard beer consumption has been hit in the region,” said Mr Szoke. “But beer consumption is driven by disposable income and that will recover once this crisis ends in a year or so.”  Since world trade started turning around in early spring, maybe the caboose will make back to the pub by next year.


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