AB InBev scraps the year’s biggest IPO after finding soft demand


AB InBev scraps the year’s biggest IPO after finding soft demand

The world’s largest brewer, Anheuser-Busch InBev, scrapped plans to sell up to $9.8bn in shares in its Asian business after weak investor appetite at its stated price range spoiled what would have been the largest initial public offering of the year.

AB InBev has been seeking to sell a minority stake in Budweiser APAC — which markets 50 brands including Budweiser and Stella Artois in China, Australia, South Korea and Vietnam.

In a statement on Friday ABI said that, “at this time”, it was “not proceeding with this transaction”. It said several factors were to blame, including “prevailing market conditions”.

The deal had been expected to trump ride-hailing company Uber as the biggest IPO of 2019. AB InBev’s troubled IPO follows the decision this week by Swiss Re to pull the £3bn flotation of ReAssure, its UK life insurance business, blaming weak investor demand. That would have been the biggest IPO in the UK this year.

The listing was crucial to AB InBev’s effort to repair its balance sheet after an acquisition spree that saw its debt rise to more than $100bn. By listing its Asian business, the brewer hoped it could entice investors with the faster growing side of its business and use the listed company as a vehicle to acquire regional rivals.

AB InBev was seeking to list 1.6bn primary shares in a deal that would have valued the business at between $54.2bn and $63.7bn. The co-sponsors for the IPO were JPMorgan Chase and Morgan Stanley.

“Investors are getting more cautious,” said Jim Paulsen, chief investment strategist of The Leuthold Group. “Investors are exhibiting risk-off behaviour, buying defensive stocks and starting to reduce equity allocations — IPOs don’t fit into that.”

“Given the high valuations and growing concerns about recession risk, companies are thinking if we don’t list now it might be too late,” Mr Paulsen said. “But for investors there is more caution in the market now.”

Analysts however had questioned whether the company was seeking too rich a price for its shares. Jefferies and Bernstein Research, which are not involved, reckoned it was only worth $45bn to $55bn.

Bernstein analysts wrote last week that they saw “limited value upside even at the bottom of the range” that AB InBev had set, implying that the initial pricing was a stretch. In a poll Bernstein conducted among investors, it found “peak appetite” from respondents came in at HK$38 to HK$40 per share, 2 per cent below the bottom end of the proposed pricing range.

Carlos Brito, AB InBev’s chief executive, told the Financial Times in an interview in late June that he would only move ahead with the share sale if the terms were good for the company.

Asked why he would want to sell a chunk of business in what has been the company’s fastest-growing region, he responded: “We’re not giving away anything. If we do it, we are only going to do it if the price is right and if the market prevailing conditions are right.”

The Asia unit, dubbed Budweiser APAC, includes a fast-growing business in China, as well as a more mature, profitable one in Australia and South Korea. The latter generated almost two-thirds of last year’s revenue of $8.5bn and just over half of earnings before interest, tax, depreciation and amortisation of $2.8bn, according to the IPO filing.

But China is expected to be the main growth driver as the burgeoning middle class trades up from local brews to foreign ones such as Budweiser, which are positioned as premium brands.

Over the past week, shares in AB InBev have fallen more than 6 per cent, giving up some of its gains from the start of this year.

Additional reporting by Richard Henderson in New York


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