Societe Generale’s Andrew Holland argues that Molson Coors (TAP) is the biggest winner from a potential hookup between SABMiller (SBMRY) and Anheuser Busch Inbev (BUD). He explains why:
David Jones/PA Wire/Zuma Press
Last Wednesday, SABMiller confirmed that it is in talks with ABInBev which may lead to an offer being made for SABMiller. If the bid goes through, the enlarged company (which we will refer to as ABISAB) would have to sell its 58% stake in MillerCoors, SABM’s US brewing JV with Molson Coors. Anti-trust considerations mean that combining ABI’s c.45% market share with MillerCoors’ 25% share would not be possible. If, for any reason, the 58% stake cannot be sold, we believe the entire ABI bid for SABMiller would collapse.
We believe Molson Coors to be the only credible buyer of the 58% stake in MillerCoors due to pre-existing rights and competitive positioning (which we describe overleaf). Due to this unique position, we believe Molson Coors will achieve an extremely advantageous (i.e. low) valuation of MillerCoors, given that ABI will be a forced seller. Based on our central-case assumption of an acquisition value of 9.0x 2016e EBITDA, we calculate that Molson Coors’ 2017e EPS would be enhanced by 48%, and ND/EBITDA post deal would be 4.3x. Even assuming a 13x multiple, the EPS enhancement would be c.33%.
We upgrade our rating to Buy.
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