InBev gives JSE an excuse to party
The JSE has adopted two habits, smokes and booze, which are now so dominant that they have a combined market capitalisation of more than R3-trillion of the stock exchange’s total R12-trillion value.
But when the brewing behemoth Anheuser-Busch InBev lists, which is scheduled to be as soon as is possible, analysts expect beer and cigarettes to have a combined value of more than R4.7-trillion, which will raise the JSE’s market cap with it.
British American Tobacco is the largest listing on the JSE with a market capitalisation of R1.7-trillion. SABMiller comes in second place with a market cap of R1.4-trillion. Third largest is Naspers, then Richemont, and then BHP Billiton. But as part of its mega deal to acquire SABMiller, AB InBev will soon list on the JSE, dwarfing all other listings.
The rise of beer to the top has been helped by the downturn in commodities, which has seen several listed resources companies drop in market value. Anglo American, for example, has fallen from its long-time position in the top 10 to 19th at present.
Nevertheless, the JSE continues to perform well in spite of slow growth in the South African economy. The exchange, unlike those in other developing nations, is home to several dual listings, which significantly boost its market cap. This means its performance is linked to global developments more closely than the others.
AB InBev, once merged with SABMiller, will become one of the largest consumer goods company in the world. It will tie with Unilever as far as global revenues are concerned, and will be well ahead of Coca-Cola.
Based on this week’s trading, the company could have a market cap of nearly R3-trillion when it lists on the exchange, and before its acquisition of SABMiller is complete. At R3-trillion, it would add another 25% to the exchange’s current market value.
But the actual boost to the JSE itself may not be as large. The exchange will gain the newly merged company but lose SABMiller’s listing when it is absorbed. The market will also have to decide whether the debt acquired by AB InBev will negatively affect its value.
There will be no share swap. SABMiller shareholders will instead receive £44 a share in cash – almost a 50% premium compared with the company’s closing share price on September 14.
A partial share alternative has also been offered, aimed at larger shareholders, which represent a premium per share of 43% (compared with September 14) and takes the form of a separate class of restricted shares, which are not be immediately tradable and subject to a five-year lock-up.
Once the SABMiller acquisition is complete, a new company (Newco) will be created and listed on Euronext Brussels and then replace AB InBev’s secondary listing on the JSE.
To finance the transaction, AB InBev has secured $75-billion in new committed senior facilities. The market still has to price this debt in once the acquisition is finalised.
Wayne McCurrie, of Momentum Asset Management, said every portfolio manager would be paid out for their SABMiller shares and would be looking at where to reinvest.
“You will probably find they are too overweight globally, and they will have to look for local investments.”
But AB InBev, once listed on the exchange, may not be the next logical destination.
“My personal feeling is InBev is overpaying for SABMiller. So, to me, I don’t think the managers will put all of their money into the next listed InBev.”
McCurrie said the money was also likely to be invested in other shares such as British American Tobacco, Shoprite, Richemont and Naspers, among others.
“There will be a massive amount of new liquidity,” he said.
BHP Billiton shares are well traded locally, but their price took a knock this week after the Brazilian government announced it may bring a multibillion-dollar case against the company after extensive damage was caused by two dams that burst at an iron-ore mine in early November.
David Shapiro, of Sasfin, said that, even though major global corporates were listed on the JSE, only a fraction of those companies’ shares were locally traded.
“Of the R11-trillion of JSE market cap, you will find a very small portion is traded locally,” he said.
So, in reality, AB InBev’s listing will not give much of a boost for the JSE, at least in terms of trade.
“They are not offering us shares – they are applying for a listing and starting a new market for shares to be traded in. But we will have to build our own register and buy shares from the outside.”
The shares that dominate local trade on the JSE each day continue to be Naspers and MTN.
“Local turnover is dominated by just a handful of companies,” he said.
“The question is: What do the index people do now?” Shapiro said. “Because nobody owns AB InBev here yet, they will not include it in the indexes when it lists.”
Companies have to build up a more than 5% local shareholding to be included in any such indexes, he said. Glencore, for example, when it listed was the third-largest company on the JSE, but was not included in the Top 40 because it had too little local ownership.
Passive investments, such as index tracker funds, have grown in popularity in recent years. According to Mike Brown, the managing director of etfSA.co.za, the passive investment product industry is one of the fastest growing investment sectors in the South African market and has grown from R54.4-million to R143-million over the past two and a half years.
If the JSE loses SABMiller’s listing but the InBev shares are not sufficiently traded locally it would mean the indexes and tracker funds would be in for a massive adjustment.
“It’s going to give actuaries a headache,” Shapiro said.
But, McCurrie said, being the only brewer on the exchange once SABMiller delists, AB InBev would acquire significant local trade.
“In theory, both SAB and InBev will be in one index at whatever time. But it is quite possible the JSE will say InBev can’t be included in the indexes until SABMiller disappears,” McCurrie said.
Africa’s thirst for beer has been noted
A continued presence in Africa is a clear priority for AB InBev in its planned $100-billion acquisition of SABMiller.
Having a local board in South Africa would be critical for the future success of the combined company, AB InBev said in a November 11 presentation. Maintaining the regional headquarters of the combined company for the continent in Johannesburg would be key to it.
AB InBev’s acquisition of SABMiller gives it a strong foothold in Africa, where 33% of SABMiller’s revenues come from.
The continent would be a critical driver for the future growth of the business, AB InBev said, noting that beer volumes in Africa are expected to grow at three times the global rate.
The deal remains subject to regulatory clearance from antitrust authorities in various jurisdictions as the beer company would account for half the global industry’s profits.
SABMiller said it had been informed by AB InBev of its intention to explore the sale of several of SABMiller’s European premium brands in line with its commitment to address potential regulatory considerations promptly and proactively. “The brands include Peroni and Grolsch and their associated businesses in Italy, the Netherlands and the United Kingdom,” SABMiller said in a statement.
And, according to Bloomberg, AB InBev may need to sell its stake in the brewer of Snow lager to secure Chinese antitrust approval for its acquisition of SABMiller.
Meanwhile, according to Business Day, the AB InBev “shares could be trading on the JSE as soon as mid-January, once it has approval from the Reserve Bank and the JSE, which has a newish fast-track listing process for cases like this one”.