SAB’s past 12 years a lot to swallow

SAB’s past 12 years a lot to swallow

FMCG SUPPLIER NEWS

IOL Business - Sep 26th 2011, 08:46

In 1999 at the time South African Breweries transferred its primary listing to London it was a very big fish in a small pond. Just more than 12 years and about $30 billion (R247bn) worth of acquisitions later, SABMiller is a big fish in a very big pond. In terms of revenue it is the second largest beer group in the world, trailing a good bit behind Anheuser-Busch-Inbev (AB-Inbev).  

This relative positioning will not be affected by the pending addition of Australia’ s Fosters to the SABMiller beer portfolio. Although Foster’s is the largest beer group in Australia, it only comes 25th in global rankings. It was, however, the largest of the remaining global beer groups that could be acquired. As Chris Gilmour of Absa Asset Management remarked: “Once the Foster’s deal is done, the beer consolidation process will involve a scramble to get hold of the second and third liners.” Analysts at Barclays Capital call this phase as the “dance of the elephants”.

What is not ruled out, although there is considerable disagreement about it within the analyst community, is the possibility of AB-Inbev acquiring SABMiller. But the prospect of competition authorities around the globe allowing one enormous group to control over 30 percent of the global beer market might be the biggest obstacle to the ultimate move in the consolidation process.

Such a mega-deal may find support within SABMiller. One London analyst has estimated, assuming SABMiller was purchased at a 30 percent premium to the current share price, that the top executives at SABMiller would stand to pick up a combined $1bn from their share options.

And when the “dance of the elephants” is over? Given that the global investment banking community has likely become addicted to the enormous fees generated by all of the consolidation activity, it is likely that the end of the consolidation process might be quickly followed by a deconsolidation process, which would see the global beer giants being broken up into regional or national players.

“The constant pace of corporate activity has meant that head office executives at SABMiller and AB-Inbev are much more like investment bankers than they are beer executives,” remarked one industry source, alluding to the fact that the top industry executives might also have become addicted to a steady pace of corporate activity.

And what has all of this activity meant for SABMiller shareholders? According to one UK-based commentator, since 1999 total shareholder return, which includes share price appreciation and dividends, has been 580 percent. And so it would be difficult to argue that the decision to transfer its listing has not been a remarkably successful one for SAB.

According to one individual close to the company, the transfer might not have happened if chief executive Graham Mackay and former finance director Malcolm Wyman had not been extremely enthusiastic in their efforts to persuade the SAB board. Back in the late nineties the board was uncertain of the attractiveness or the need for such a move. Such uncertainty was understandable given that SAB intended to remain focused on its area of success, which was producing and selling beer in emerging markets. By the late nineties, before it headed to London, SAB was running successful operations in East Africa, Eastern Europe, Russia and China.

However, Mackay and Wyman managed to persuade the board that in the light of the consolidation that was reshaping the global beer industry, SAB needed a footing in a major global equity market if it was to play an active role in that consolidation process. It was a case of eat or be eaten. So in March 1999, SAB plc was listed on the London Stock Exchange and Mackay and Wyman relocated to London from where they directed the growing team of executives being sent out from the home base in South Africa to head up the various regional operations. Until recently the key positions in the group’ s international operations were occupied by South African executives who were familiar with SAB’ s management systems and styles.

This is in stark contrast to the strategy employed by Mike Levett and Old Mutual. A senior executive of Old Mutual at the time told Business Report that as part of the strategy of listing in London and building an international operation Levett, Old Mutual’ s chief executive, had decided to exclude the group’s South African executives from senior positions in the international business preferring instead to bring on board non-SA executives.

It is unclear to what extent the use of local expats was key to the success of SAB’s international strategy, just as it is unclear to what extent their exclusion played a role in Old Mutual’s dismal performance overseas but it is fair to assume it was a significant factor.

But now, 12 years later, there are signs of change. Wyman, who was a powerful second-in-command to Mackay, retired earlier this year and was replaced by British Jamie Wilson. In two years’ time when Mackay retires, his replacement may not be South African, although there are some excellent candidates on that front. Perhaps by then SABMiller will be part of AB-Inbev and SAB will be looking to go it alone. - Ann Crotty