SA-led titans display urge to merge
Massive deals in offing as giants get into position to swallow their rivals
HUNDREDS of billions of dollars will change hands this year if rumours of a spate of megamergers prove to be true.
Some of the biggest predicted tieups are Glencore and Rio Tinto, SABMiller and its larger rival AnheuserBusch InBev, and, further afield, oil giants Shell and BP.
The “GlenTinto” scenario has been around for a few years, but in October, Glencore announced it had finally made the call — and the idea had been rejected.
The Swiss-based commodities conglomerate is run by South African Ivan Glasenberg, who owns 8.3% of its shares. Glencore took out a secondary listing on the JSE in 2013.
The company produces and trades about 90 products with a serious stake in agriculture and minerals. But its gaping hole is iron ore, which is Rio’s major cash cow.
Glasenberg wants to fill the gap — and he is known for getting what he wants, as those who recall his relentless pursuit of Xstrata will attest.
Although he has been spurned at this point, speculation is that he has approached Rio Tinto’s biggest shareholder, Chinalco (the Aluminium Corporation of China), which has a 9.8% stake. The tie-up would create by far the biggest company in the industry, worth about $150-billion. To put that in context, consider that Anglo American’s market cap stands at about $26-billion.
One potential benefit of the deal would be the estimated cost-saving synergies of about $20-billion.
Still, pundits are divided on the potential for the deal going through, assuming even that the monstrous competition challenges from a range of countries can be scaled.
On the one hand, a GlenTinto scenario would benefit Rio by cutting its over-reliance on iron ore.
Glencore needs some kind of acquisition to supplement its declining asset base. However, any deal would be heavily weighted in Glencore’s favour — Rio would have to accept a zero premium fee, since Glencore will already be stretched to pay the fair value of between R633-billion and R689-billion.
A further consideration is the corporate cultures and strategies of the two companies.
Rio’s CEO, Sam Walsh, is reported to be a conservative and considered man, and Glasenberg’s reputation is that of a ruthless risk taker.
The more the nose-diving iron ore price drags down the value of Rio Tinto, which is chaired by South African Jan du Plessis, the better it looks for Glencore.
Another massive merger apparently brewing is that between Anheuser-Busch InBev — which makes Budweiser, Corona, Skol and Stella Artois — and SABMiller, which brews Castle Lager, Miller, Pilsner Urquell and various beers across Africa.
AB InBev, which is listed in Belgium and Brazil, is still the biggest brewer according to sales, but its results in October showed that its market share had dropped by more than 2%. The reason: a slowdown in sales in Russia and China, and a surge of interest in craft beer.
It is a thirsty company, though, with the 2008 merger between Anheuser-Busch and InBev, worth $52billion, being the biggest brewing deal in history. Then, last year, the company spent $20.1-billion buying Mexican brewer Grupo Modelo.
There are not many ways for the company to stem the outflow of market share other than to make another big purchase, preferably with another brewer with a strong presence in emerging markets where beer consumption is growing.
SABMiller is the obvious choice. The JSE- and London-listed brewer saw its market share rise by 3% last year as its focus on fast-growing Africa started paying off. SABMiller is also thinking of corporate action, and was rebuffed in September in a bid to win over Heineken.
But any deal would come with a mind-blowing price tag: an estimated $121-billion, which would far exceed the previous record.
Although no formal talks have happened yet, AB InBev has revealed that it is talking to banks to raise cash, even if it is coy about what this will be used for.
Should the deals take place, they would surpass even 2014’s astonishing array, which included the R23.3billion Woolworths takeover of Australian high-end department store chain David Jones, Nedbank’s $495million purchase of 20% of Africabased Ecobank and Steinhoff’s R62.8billion takeover of Pepkor — the largest deal yet in South Africa.
That coup was orchestrated by Christo Wiese and Markus Jooste, who met decades ago when Jooste was tasked with auditing one of Wiese’s companies.
In November, Steinhoff, which owns several discount furniture operations in Europe, announced it was buying 92.3% of Pepkor for R62.8billion.
Pepkor is Africa’s biggest discount retailer, and this hook-up will make Steinhoff the third-largest discount retailer in Europe with more than 6 000 stores across Africa, Europe, Australia and Asia and annual sales of more than R156-billion.
Any deal would come with a mind-blowing price tag: $121-billion