Coming to a Head

SABMiller's CFO talks about the pivotal role of M&A in a rapidly consolidating beer industry.

It’s been said that capitalism, by its very nature, is a permanent state of war. If that is true, then the big set-piece battles of that war are mergers and acquisitions, where “war chests” are accumulated, and “winners” and “losers” are declared, often after bitter fights for control of a company. So it was in June this year, when Anglo-African brewer SABMiller was widely declared the “loser,” having been outflanked by one of its rivals, the American giant Anheuser-Busch, when it won control of China’s Harbin Brewery from right under SABMiller’s nose.

For SABMiller’s CFO, Malcolm Wyman, the instant verdict on Harbin of many investment analysts and the media was familiar. For more than a decade, SABMiller has been engaged in battle, pursuing an aggressive strategy of growth through acquisition, a strategy that has faced questions and doubts at every step along the way. During that period, the company — formerly South African Breweries — has transmogrified from a small regional brewer, with annual sales of about 25 million hectolitres, into one of the world’s top three brewers, with sales of 175 million hectolitres and revenue of $13 billion (€10.8 billion) a year. Since 1999, SABMiller has delivered a total return for shareholders well above that of its rivals.

Along the way, Wyman developed what he describes as a highly disciplined M&A machine — “the SABMiller acquisition way” — to identify and execute transactions in the rapidly consolidating beer industry. He has lost count of the number of deals he’s done, but reckons none has failed. Yet, SABMiller is only just beginning to get the recognition for its deal-making prowess that Wyman feels it deserves.

“Coming from where we did, starting from such a low base, I think our credibility has had to be built brick by brick,” says the 57-year-old, who has been head of corporate finance since 1990, and became the company’s first CFO in 2001. Recounting all of the naysayers he’s had to deal with since the company embarked on the acquisition trail in the early 1990s, Wyman says, “We spend a lot of time with our investors, trying to explain a very complex business. We have tried to build credibility and, I think, we are now starting to get somewhere with it.”

However, the doubters persist, as the Harbin deal in China deal showed. Typical of the press coverage in June was the headline in The Times: “SABMiller loses battle for Chinese brewer.” Some observers lamented what they saw as SABMiller’s over-cautious approach. SABMiller had bought 29.4 percent of Harbin in July 2003 for $87 million, but had missed an opportunity to raise that stake, only to discover that Anheuser-Busch had grabbed 29 percent in May of this year. SABMiller’s belated full offer of $550 million for Harbin was topped by Anheuser-Busch’s $720 million, which SABMiller left unchallenged.

But did SABMiller, realising a profit of $124 million in less than a year, “lose” Harbin, or did Anheuser-Busch overpay? And were other factors at play that made it prudent for SABMiller to step away?

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