Russia: Media said InBev wants to buy Turkish Efes; Efes said it’s “not for sale”

Inbev, the world's brewing giant by volumes, represented by Sun Interbrew in Russia, is in negotiations for the purchase of the international business of the Turkish Efes Breweries, Russian news agencies RIA Novosti and Kommersant communicated on July 28. According to the same sources, the value of the deal for a controlling stock package could exceed $1 billion.

However, Efes is denying the information. "Anadolu Efes Biraclk ve Malt Sanayii A.S., mother company of Efes Breweries International N.V. (EBI) said the news is wrong and that EBI is not for sale. Anadolu Efes announced on July 28 that there are no plans on selling EBI and no negotiations regarding this matter were carried on.

If the news were right, InBev’s Russian division would be the biggest winner in the deal. Kommersand said: “Efes International's Russian plants would be especially profitable for it, with them under its control, Sun Interbrew could come close to eternal local market leader BBH.”

Efes Breweries International is part of the Efes Beverage Group, Turkey's biggest brewery, which controls 79 percent of the beer market in Turkey and produces more than 90 million dals of beer per year. Efes Breweries International has plants in Russia, Kazakhstan, Serbia and Montenegro, Romania and Moldova. Its turnover in 2004 was $398.5 million and its capitalization about $1 billion. In Russia, Efes owns three breweries and, according to research by the Business Analytica Co., occupies about 7 percent of the Russian market by value. Its main brands are Efes, Warsteiner, Stary Melnik and Sokol.

Inbev is the world's largest producer of beer – 2.05 billion dals per year, and the world's second largest in turnover (after the U.S. Anheuser Busch) at €8.57 billion. It controls about 14 percent of the world market. It owns about 200 brands, including Stella Artois, Brahma and Beck's. In Russia, Sun Interbrew owns eight breweries and sold 130 million dals of beer last year. Its share on the Russian market by value is 16.4 percent (second only to BBH). Its main brands are Klinskoe, Tolstyak and Sibirskaya Korona.

Kommersant commented: “One Russian Sun Interbrew distributor told Kommersant that Sun Interbrew general director Joseph Strella made the negotiations known at a recent closed meeting with distributors. That source said that Strella mentioned two deals in the works when he described the company's plans. One of those deals is the purchase of the Tinkoff brewing company, which has already taken place. The other deal is the purchase of the Turkish Efes brewery by the Inbev holding. “Strella emphasized that the parties were very close to an agreement,” the source said. “It was a real show,” another distributor present at the meeting said. “After it, we were supposed to be aware of what a big company we work for and what excellent prospects we will have.” Both Efes and Inbev refused to comment on that information. “I know nothing of any merger, acquisition or other cooperation plans with Sun Interbrew,” Efes Beverage Group public relations manager Durul Kandemir said. The central office of Inbev in Brussels did not respond to a written enquiry from Kommersant.

Even though Strella did not disclose the details of the negotiations, certain parameters of the deal can be mentioned already. Since the size of the companies is incomparable, this is more likely to be the acquisition of the Turkish company by Inbev than a merger. “Efes does a lot of business in Turkey, bottling Coca Cola, for example,” Renaissance Capital Analyst Natalia Zagvozdina said. “It is doubtful that the brewry holding is interested in that. In addition, Efes position at home is so strong that I don't see any sense in them selling the business.”

Experts estimate the value of a controlling package in Efes Breweries International at over $1 billion. “At the moment, that is the market price of the company,” Zagvozdina said, “and you have to add a 20-30–percent premium to that sum.”

The acquisition of Efes is also logical in expert eyes. “Inbev is known for its aggressive behavior on the market and its desire to buy fast-growing markets, which is exactly what Efes is,” said Marat Ibragimov, analyst with Uralsib. “It was after uniting with the Brazilian Ambev last year that the holding became number one in the world.” Efes has a leading position on all of its markets except Russia. In Moldova, the Turkish company controls 75 percent of the market. Inbev and Efes already have a joint project in Romania, a brewery that they run on parity. None of those markets can be characterized as highly profitable, however. Russia produces about 80 percent of the financial intake of Efes Breweries International, where it has 7 percent of the market.

That is why the position of Sun Interbrew will likely be strengthened in Russia. It is only a matter of time before the number of players on the market will be decreased both in Russia and the world,” OFG analyst Alexey Krivoshapko said. “Obviously, Efes is the most attractive object in Russia. It is a business with a good selection of brands and high profitability.” “The Russian beer market has come to a point of stagnation,” Zagvozdina said. “It is better to sell little beer, but expensively.”

Another advantage to the deal is that is gives Inbev a chance to move farther ahead of its competition. The company is increasing its lead over its main competitor, the Dutch Heineken concern. Even more importantly, Inbev will draw closer to market leader BBH. “If Inbev can buy some more beer assets now, in Russia this time, it is likely that here will be a new leader on the local market,” Ibragimov said.”

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