AB InBev’s Q2 Results Marred By Brazil Slowdown And Currency Woes

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Anheuser-Busch InBev
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Anheuser-Busch InBev (NYSE:BUD) announced its Q2 and half-yearly results on July 29. As expected, negative currency translations more than wiped out the brewer’s growth in revenue, almost 70% of which comes from outside the U.S.

Bud Q&A 22

Apart from the earnings update, many eyes and ears were focused on the update on the SABMiller combination. The third largest acquisition in history beckons regulatory approval, and AB InBev has secured that in Australia, Europe, South Africa, the U.S., and has now secured conditional approval of China’s Ministry of Commerce. AB InBev has now obtained approval in 23 jurisdictions to date, and has overcome all major regulatory hurdles for the transaction. The coming together of two of the biggest names in beer will create a behemoth that will account for ~28% of the global beer market. The deal, however, has met with a pause, with SABMiller taking time to consult with its shareholders over whether the new revised offer by AB InBev is acceptable. The value of the offer has fallen, since the pound sterling has taken a hit against the U.S. dollar and the euro.

The pound sterling is down ~10% against the euro and ~12% against the dollar since right before the announcement of the Brexit vote on June 23. AB InBev lifted its cash offer to £45 a share, from £44 a share, to appease shareholders of SABMiller, which has halted, for now, integration with AB InBev, and is assessing whether the shareholders want to go ahead with the new offer. It worries investors that while the value of the partial share offer has increased sharply as the value of the pound has fallen, the value of the cash offer for the rest of the shareholders has fallen.

AB InBev still looks to close this deal in 2016 itself, and has been working with SABMiller on integrating technology, finance, procurement, and certain supply-chain functions. The pause doesn’t necessarily mean that the deal might not come through or that SABMiller will oppose the new offer. SABMiller said that it would recommend that shareholders accept the increased cash offer by AB InBev that valued it at 79 billion pounds (~$105 billion), down from almost $108 billion in November 2015, when the two brewers reached an agreement to combine their businesses.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
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