(Bloomberg Opinion) -- To pull one initial public offering was a misfortune for the beer giant Anheuser-Busch InBev SA. To jettison two would be careless.
That’s why the Budweiser brewer isn’t taking many chances with the second attempt to list its Asian operation. AB InBev will start by marketing about 1.26 billion shares of Budweiser Brewing Company APAC Ltd at between HK$27 (U.S.$3.45) and HK$30 each, Bloomberg News reported on Tuesday.
This implies that the company will raise between U.S.$4.4 billion and U.S.$4.8 billion. Assuming the offering equates to 10% of the company, the whole business would have an enterprise value of U.S.$44 billion-U.S.$49 billion.
There are two reasons why this looks like a more sensible approach than last time, when investors balked at the hefty price tag. First, as my colleague Chris Hughes has noted, the size of the deal — roughly half of what AB InBev was seeking previously — makes it easier to slip down. Second, the valuation looks more enticing. The expected range would represent a 6%-15% discount to Bernstein’s estimate of the business’s enterprise value of $52 billion, so investors would have some hope of snagging a bargain.
With the parent company having agreed to sell its high-margin but low-growth Australian business, the remainder of the Asian arm is more focused on China. The country probably contributed about 70% of 2018’s earnings for the slimmer unit, compared with 50% the last time AB InBev tried the IPO of the full business, according to Bernstein.
Bloomberg News also reported that the offering had attracted Singapore’s sovereign wealth fund GIC Pte as a cornerstone investor, with a commitment of about $1 billion. That should give other potential shareholders more confidence.
The company certainly can’t afford another embarrassing decision to pull the listing. The sale of the Australia division has at least made a dent in the brewer’s gargantuan net debt, which stood at about U.S.$104 billion at the end of June (or 4.6 times earnings). With the Australian sale, the debt-to-earnings ratio should fall to below 4 times by the end of this year. The proceeds from the anticipated Asian listing should make the debt ratio look more manageable still.
The IPO would also give AB InBev a valuable acquisition currency. A 10% free float would leave it plenty of firepower for deals, without losing control of the unit. With debt being tamed to some extent, some future acquisitions might start to look appealing.
Investors (besides GIC) are yet to decide whether this offering will prove more tempting than the last one, but AB InBev has clearly left more in the glass for them this time around.
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Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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