Jeremy Warner's Outlook: SAB's globetrotting stretches to Colombia

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The Independent Online

The World's brewing majors seem to have lost none of their appetite for consolidation. Already an auction is developing for the latest group of assets to go under the hammer, Grupo Empresarial Bavaria (GEB). This is not as you might imagine a regional Bavarian brewer, but Colombia's largest beer company and the second biggest in Latin America as a whole. And just in case you were wondering, the Germanic origins of this company are much older than the less-than-savoury group of Germans who fled Europe to Latin America in the immediate aftermath of the Second World War.

Contrary to reports, it's still early days in the negotiations, no one's going to pay $9bn for the company, and there was some doubt last night whether the company was up for sale at all. Nonetheless, all the usual suspects - from SABMiller to Anheuser-Busch, Heineken and InBev - have expressed an interest, and despite the apparent denials, it is certainly their impression that the company is indeed on the block.

Only one of these companies, InBev, would be able to extract significant cost-savings and synergies from buying GEB. None of the others have any existing significant interest in the region, so for them the takeover would have to stand on its merits as just another bolt-on acquisition. This doesn't seem to have deterred SABMiller, the London-based emerging markets and US brewing group.

Indeed, provided the price doesn't rise too high, it may be in a better position to do a deal than Anheuser and others as GEB's controlling shareholder, Julio Santo Domingo, seems to be more interested in gaining a strategic holding in a major brewer than selling out for cash. SAB, 36 per cent-owned by Philip Morris on account of of its merger three years ago with Miller, has already demonstrated that it has no problem with large shareholders and the boardroom representation they demand.

SABMiller has enjoyed a strongly rising share price over the past two years, yet the merits of the global beer corporation are still far from proven. The theoretical justification for it goes something like this. With sales plateaued and market positions entrenched in developed countries, brewers must go to emerging markets to find whatever growth is going. What's more, all markets, developed and emerging, are becoming progressively dominated by international premium brands. The company with a strong collection of such brands and the regional market power to exploit them can therefore hope to clean up.

At least that's what Graham Mackay, the chief executive of SABMiller, used to argue, until he bought a major brewer in a market so mature it is actually in gentle decline - the United States. For that he turned the argument on its head and said that an emerging markets brewer like SAB (originally South African Breweries) needed a mature market position to give it stability. Others might be forgiven for thinking he was just empire building.

Still, no one can argue with the results. Despite City scepticism, and a lacklustre start, he's succeeded in turning around Miller while his various emerging market acquisitions seem to be firing on all cylinders. With the share price more than double what it was two years ago, no one's going to kick against his ambitions in Latin America, which outside China, is about the only untapped growth market left to plunder.


Exactly the same factors that drive the big brewers towards global consolidation applies to banking, and, for that matter, most other industries. This may be only the latest corporate fad, driven more by fee hungry investment bankers and the empire building pretensions of banking executives than underlying commercial merit, but there's certainly a lot of it going on. Deprived by competition regulators of the opportunity for further consolidation at home, banking is progressively being driven overseas to find its growth strategies.

The big league players in this game are Citigroup and HSBC. In the second tier comes Royal Bank of Scotland Group, though so far the focus of its acquisition strategy has been almost entirely on the fragmented US market, not, as with others, the Far East, China, India and Latin America. Then yet further down the feeding chain comes Barclays and Britain's very own emerging markets bank, Standard Chartered.

Whether either of these two latter players stand much of a chance against the premier league of HSBC and Citigroup is open to question. Standard Chartered managed to outbid HSBC in the battle for Korea First, but in so doing, it may well have overpaid and after the £1bn of equity it had to issue to help pay for the company, it will struggle to finance further acquisitions. Barclays has certainly got the balance sheet to compete for assets, but its international business is still relatively undeveloped. Having been forced to sell out of South Africa in the early 1980s by the anti-apartheid movement at what today looks an almost criminal undervaluation, it is now attempting with Absa expensively to buy back in.

In so doing, its main rival was Standard Chartered, now out of the action because even if it could have gained the confidence of Absa and its shareholders, it couldn't have afforded the price. Strategically and geographically, then, Barclays and Standard Chartered look an almost perfect fit. The point has not been missed by Barclays, which has tried unsuccessfully to woo Standard Chartered on at least two occasions in the past.

But for the now quite fancy rating afforded to Standard Chartered shares, Barclays' door would still be open. Another obstacle would be executive ego. Mervyn Davies, the chief executive of Standard Chartered, has no intention of ceding the top job to his opposite number at Barclays, John Varley, and vice versa. The perfect match, then, but perhaps regrettably for those who believe that the global market place requires the creation of national champions, perhaps not one that looks destined to be struck.

LSE battle

We are still very much in the phoney war stage of the battle for the London Stock Exchange, yet already the gloves are off. Deutsche Börse, which last night hosted a party for City types at London's Tate Modern, has found itself at the butt end of a chorus of complaint which has highlighted both its vertically integrated structure for share dealing costs and its supposed lack of adequate corporate governance. Wasn't Rolf Breuer, the chairman of the supervisory board, once accused of misleading investors, an action that he had to settle expensively out of court? Why yes, he was. Meanwhile, a growing number of Euronext shareholders have been expressing concern about the Paris bourse's determination to enter the fray. The LSE is already too expensive, they say, and would become even more so in a head-to-head auction with Deutsche Börse.

With the mud flying, several users and other interested parties have already been in to see the Office of Fair Trading. At this stage, the OFT has got nothing to investigate, since it has yet to be notified of a formal intention to bid by either Deutsche Börse or Euronext. But already it is reported to be well on top of the brief.

Ministers are no longer meant to have any say in presiding competition matters, but privately they are already beginning to make their views known. A Competition Commission investigation now seems a virtual certainty, not because of any nationally motivated opposition to the two foreign bidders, but because it provides a convenient way of ducking the issue. To clear without an inquiry would look too much like trying to curry favour with the Continentals.

And if the Competition Commission eventually blocks one or other of the bids, it can for diplomatic purposes be blamed on regulators. Besides, enough genuine competition concerns have now been raised to make it almost a no brainer, even if the stock exchange can be persuaded to back one or other of the bidders. The chances of the whole endeavour running into the sand grow stronger by the day.