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Molson Coors Sues SABMiller Over Canadian Distribution Deal

Written by on April 2, 2013

SABMiller acquired Fosters Group and significantly increased its debt leverage to finance the transaction. Adjusted for the acquisition, debt leverage as of March 2012 increased to 2.8 times from 1.5 times the prior year. However, even considering the increase in leverage, we continue rate the firm an A as the firm’s other strengths offset what we believe is a temporary increase in leverage.

While SAB and Anheuser-Busch InBev have been peacefully coexisting in the short term while they integrate their respective acquisitions, we expect industry competition to intensify over the longer term.

SABMiller’s emerging market exposure is one of the most developed of the global mega-brewers, which lends an attractive volume growth rate; however, it also leaves SAB relatively more exposed to the uncertainties of the developing world, as emerging markets are less efficient and operationally riskier.

This is a huge opportunity, as per capita consumption in these markets lags those in developed markets. For example, the Chinese beer market is twice as large as the U.S. market, but per capita consumption is less than half of American consumption. SAB is well positioned to benefit from this potential consumption growth, as it jointly owns the Chinese brand Snow, the best-selling beer brand in the world.

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