City sceptics question SABMiller's Peroni deal

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The Independent Online

SABmiller Made its first foray into Western Europe yesterday, agreeing to buy a majority stake in Italy's family-owned Peroni for €246m (£175m).

Analysts said the move signalled the brewer's designs on toppling Anheuser Busch of the US from its number one slot, possibly by bidding for Scottish & Newcastle. Formerly known as South African Breweries, the group became the world's second biggest brewer last year by swallowing Miller of the US for $5.6bn (£3.5bn).

The brewer, which beat off competition from Belgium's Interbrew, Denmark's Carlsberg and S&N, is acquiring 51 to 60 per cent of Peroni and has an option to take total control over the next five years.

But shares in the group fell 16.5p to 443p as the City struggled to make sense of the deal, which offers limited cost savings. Stuart Price, an analyst at WestLB, questioned the company's "capital discipline", while Mark Blythman, at Merrill Lynch, raised concerns about its "acquisition strategy and willingness to pay up for small, but strategically questionable deals like this one".

Graham Mackay, SABMiller's chief executive, said the deal was a springboard into a growing Italian market, "one of only two Western European markets to be experiencing real volume growth at some 3 per cent". He said the group intended to sell its Pilsner Urquell premium lager through Peroni's distribution network. It also saw growth from exporting Peroni, Italy's best-selling beer, to the US.

Sources close to the deal said Interbrew outbid SABMiller, but the 157-year-old Birra Peroni chose the South Africans because it preferred their management style. The Italian brewer's management team has been incentivised to stay on, although SAB will appoint most of its board.

Assuming SABMiller takes a 60 per cent stake, Peroni's enterprise value would be €563m including €153m of debt. The group has agreed to pay an extra €25m if performance targets for 2003 are met, while the options to raise its stake to 80 to 100 per cent could earn Peroni an extra €40.8m depending on performance.

The London-based group, whose brands include Castle Lager and Miller Lite, said it was expecting cost savings of about £9m by the end of the third year of ownership. It expects the deal to be completed within three weeks.

Birra Peroni also brews Nastro Azzurro, Italy's biggest beer export and third-favourite premium lager. It is the country's second-biggest brewer, with a quarter of the market. In 2002 it had revenues of €494m and adjusted Ebidta (earnings before interest, depreciation and amortisation) of €44.5m. Peroni is one of several family-owned drinks businesses to have sold up as consolidation in the global drinks industry quickens.

Not all analysts were sceptical about the deal. Nigel Davies at JP Morgan said: "We think in hindsight this will look a particularly astute transaction."

Asked whether Peroni would distract SABMiller from the problems it has encountered in the US since buying Miller, a spokesman said: "I can assure you that there's enough focus on Miller to make things happen and make things change." The group reports full-year figures next week.