ABI-SABMiller merger won't cause European beer market hangover, Moody's says

In a note to clients on Tuesday, the ratings agency said although an ABI-SAB combination would result in significant shifts in market share in the UK, Italy and the Netherlands, ABI plans to sell most of SABMiller's assets in these countries, and there is "limited overlap" in other European beer markets.

While the larger combined ABI-SAB entity will probably grow more rapidly than its peers post-2017, this growth will mainly be outside of Europe, Moody’s noted. The combined entity will generate only 9% of its total EBITDA in Europe following the planned sell-off of SABMiller assets in the UK, the Netherlands and Italy to satisfy antitrust requirements.

Heineken, which has the leading position in most of these markets, would be the most affected if the assets were not sold, but its leadership in the higher margin premium segment, particularly in the UK and Italy, provides a degree of protection, the ratings agency observed.

European-rated brewers are unlikely to bid for divested ABI-SAB assets, even if they are a good strategic fit. However, Moody’s said Carlsberg Breweries and Turkey's Anadolu Efes Biracilik ve Malt Sanayii ratings would be at risk of downgrade if they made debt-funded acquisitions because their leverage is already high for their current ratings.

“Heineken, on the other hand, has the financial flexibility but would face anti-trust issues if it were to acquire these assets,” said Paolo Leschiutta, a sector analyst at the ratings agency.

"We don't expect potential changes to competition to have much of a credit impact on Carlsberg and Heineken in the next 12-24 months, given the time it will take to close the ABI-SAB transaction, extract synergies and improve profitability in Europe, and to fully integrate SABMiller's assets into those of ABI."