DealTalk: CVC faces tough market for StarBev sale

BRUSSELS/LONDON Wed Feb 22, 2012 3:10pm GMT

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BRUSSELS/LONDON (Reuters) - Fierce competition and sluggish markets make eastern European brewer StarBev a tough sell for its private-equity owner even if it offers potential long-term growth and a respected beer brand in Straropramen.

CVC Capital Partners wants to sell its brewing assets in nine countries, including the Czech Republic, Hungary and Romania, that it bought from Anheuser-Busch InBev (ABI.BR) in 2009, sources told Reuters late on Tuesday.

The firm has opened a data room and major brewers are said to be mulling bids.

AB InBev is in theory at the front of the queue, given it agreed with CVC in 2009 that it would have the right of first offer to reacquire the business should CVC decide to sell.

The debt challenges the brewer faced from InBev's $52 billion takeover of Anheuser-Busch in 2008 are largely behind it and it had $4.8 billion of cash and equivalents at the end of June last year.

However although it clearly can buy again, it may not have the appetite.

Asked in November, Chief Executive Carlos Brito confirmed AB InBev's commitment to Russia and Ukraine but showed little obvious interest in other eastern European areas.

"The other countries have nice margins with very little scale, not a lot of brand overlap, different brands everywhere, different languages, different route to markets, different regulatory framework, everything," he said.

Even the margins may not be as good as before.

SABMiller (SAB.L) showed in a presentation on Tuesday that its profit (EBITA) in the region fell from 2008 and 2009 levels in the past two years.

"That's a strong company in the region. It's hard to imagine that StarBev would have done any better," said Bernstein Research analyst Trevor Stirling.

StarBev might be more appealing to rivals SABMiller and Heineken (HEIN.AS), already heavily present in Eastern Europe and so in place to extract required synergies from a takeover.

However, antitrust challenges could rule them out.

SABMiller could face a regulatory hurdle if it wanted to add a 15 percent share of the Czech market to the 47 percent it already has.

Heineken, number one in Bulgaria, would be joining forces with the number two player.

In Hungary, SABMiller, Heineken and StarBev sell more than three-quarters of the beer consumed, with a fairly even three-way split.

SABMiller and Heineken would also need to ponder the trade-off between missing out on the benefits of a merger in the bigger Eastern European countries in exchange for gaining number one positions in smaller markets Croatia, Montenegro and Serbia.

AB InBev and Heineken both declined to comment, while SABMiller were not immediately available for comment.

Carlsberg (CARLb.CO), the leader in Russia and Ukraine and other former Soviet republics, also declined to comment. It said on Monday its focus for acquisitions was China and other parts of Asia.

JAPANESE WILD CARDS

CVC could pass on its assets to another private equity firm, but one banker familiar with the situation said he believed the sale was essentially targeted at trade buyers.

A clue to possible other bidders was offered by CVC's appointment of Japanese bank Nomura as an adviser, indicating the eventual buyer could be a Japanese brewer such as Asahi (2502.T), which has completed a number of transactions in the past five years, albeit all in its Asia-Pacific zone.

The maker of Japan's top-selling "Super Dry" lager and soft drinks aims to generate 20-30 percent of its sales overseas.

Rival Suntory SUNTH.UL is another Japanese brewer in the frame. It too is seeking growth outside its highly competitive and shrinking home market, raising its stake in a French wine estate over the past year.

Price will be a key issue, with reports suggesting CVC would be seeking $3 billion.

CVC bought the businesses for an enterprise value of $2.2 billion with a potential future payment of as much as $800 million contingent on CVC's return on its investment.

It is not clear whether the latter would be included in any sale and whether indeed CVC would be selling at any level above its own acquisition price.

(Additional reporting by David Jones in London, Ole Mikkelsen in Copenhagen; Editing by David Cowell)

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