Burger King Sale Could Aid AB InBev Bid for SABMiller, KBC Says

The Brazilian investors who plan to list Burger King Worldwide Holdings Inc. may use the proceeds to help fund an offer by brewer Anheuser-Busch InBev NV for its biggest competitor SABMiller Plc, according to KBC Groep NV.

The investors, including Brazilian billionaire Jorge Paulo Lemann, own a stake in AB InBev, the world’s biggest beermaker, and are also backers of 3G Capital Inc., which will get $1.4 billion from the sale of 29 percent of Burger King. Those plans were announced a week after Belgian families that founded AB InBev’s predecessor company raised 223.4 million euros ($292 million) selling stock in UCB SA, a Belgian drugmaker.

“Over the past week, AB InBev’s Belgian and Brazilian reference shareholders have freed up considerable amounts of cash,” Wim Hoste, an analyst at KBC in Brussels, said in a note. The moves could be “a coordinated attempt to be followed by a fresh cash injection into AB InBev. We see only one brewing acquisition likely that would be large enough to warrant a capital increase, and that is SABMiller.”

Lemann and fellow 3G partners Marcel Herrmann Telles and Carlos Alberto da Veiga Sicupira sit on the board of AB InBev, which analysts have speculated may consider acquiring SABMiller, the London-based maker of Grolsch and Peroni. SABMiller soared the most in almost three years in October after IG, a Brazilian news website, reported the beermaker was in talks to be bought by AB InBev. Spokesmen for both companies declined to comment.

Hoste cut his recommendation on AB InBev, the brewer of Budweiser and Stella Artois, to “hold” from “accumulate” today. He doesn’t formally cover SABMiller.

Net Debt

SABMiller, which has a market capitalization of 40.1 billion pounds ($63.5 billion), may cost a buyer about $81 billion, KBC estimated. The company also has net debt of about $18 billion after buying Australia’s Foster’s Group Ltd. last year for about $11 billion, Hoste said.

An acquisition of its competitor could lead to net debt for AB InBev of $134 billion, a multiple of 5.9 times estimated 2012 earnings before interest, taxation, depreciation and amortization, Hoste said. That’s “too much leverage,” he said.

Any purchase would necessitate asset sales, including SABMiller’s stake in its MillerCoors LLP joint venture with Molson Coors Brewing Co., Hoste wrote. Molson Coors would “seem a logical candidate” to buy the stake, “although financing could be troublesome,” he said. The U.S. brewer agreed to buy StarBev LP this week for 2.65 billion euros.

SABMiller’s major shareholders, including Altria Group Inc., which owns 27 percent of the company, may be prepared to accept AB InBev shares instead of cash, according to Hoste, which “would mean significant dilution” for AB InBev’s shareholders, who’d lose their majority stake. AB InBev could also pursue a capital increase, he said.

Antitrust Issues

AB InBev was formed in 2008 when InBev NV bought Anheuser-Busch Cos. in a $52-billion deal. The Brazilian and Belgian controlling shareholders participated in a $9.8 billion capital raising by InBev to help fund the acquisition.

A combination of AB InBev and SABMiller wouldn’t raise many antitrust issues, except in the U.S. and China, Hoste wrote.

“Although all of this is just speculation, we believe the moves of the reference shareholders indicate something might be cooking at AB InBev level,” the analyst said.

Other analysts, including Trevor Stirling at Sanford C. Bernstein in London, say a combination of the two companies is unlikely. Stirling cited “significant executional risks” in a note published March 14.

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