The huge price paid by AB InBev for SABMiller – and the small proportion of physical assets - is almost certain to lead to consolidation and job cuts, according to a leading brand valuation and strategy firm.
The $107bn deal, which was finalised last week, has left AB InBev with a combined workforce of 225,000 employees.
It has also left it with a high proportion of intangible assets to tangible assets and, according to the City-based consultancy Brand Finance, will require ‘huge post-extraction synergies’ – or job-cuts and mergers in layman’s speak – to justify the price paid.
The final purchase price values the new company at $120bn. Of this, just $13bn is in tangible assets, such as plant and machinery, with a further $32bn worth of ‘brands’ and $4bn of software.
The remaining $71bn of the valuation price - 59% of the total - is described as ‘residual goodwill’.
‘With this deal AB InBev has created a huge goodwill figure in its balance sheet,’ says Brand Finance CEO, David Haigh. ‘It has no doubt created huge seasonal goodwill with the happy shareholders at SABMiller. For them Christmas has come early this year!’
AB InBev is already the leanest of all the major brewers, operating at a margin of 32%, significantly more than SABMiller’s 20% and more than twice those of Carlsberg and Heineken, and it is expected to carry out serious efficiency savings as part of its acquisition.
AB InBev has already targeted savings of $1.4bn a year, but Brand Finance believes the figure could be $1bn higher.
‘It will have to extract huge post-acquisition synergies to justify the extraordinary goodwill figure,’ the company said. ‘Such figures may justify the goodwill figure in the end - at least to AB InBev’s shareholders.’