Last week, the management of Nigerian Breweries (NB) announced a proposed merger with Consolidated Breweries (CB). Both are subsidiaries of Heineken NV in which the latter holds equity stakes of 54.1 percent and 53.85 percent, respectively. According to information from the firm, post merger the combined entity will remain listed as NB.
While NB exerts dominance in the mainstream and premium beer market with its flagship product Star and others such as Heineken and Gulder, Consolidated Breweries is a strong player in the value segment of the market with products like Turbo King and 33 Export Lager Beer.
Consequently, the new combined entity will have a wider product portfolio covering all the major beer segments and will give NB more exposure to the value segment. In terms of market share, we estimate NB’s market share at around 63 percent of the market and around 6 percent to 7% for Consolidated. As such, the combined entity should have a commanding market share of almost 70 percent of the Nigerian beer market.
Historically, the Nigerian beer market has typically grown unit volumes by around 10 percent y/y on average. However, since 2012, the market has come under pressure due to a combination of factors including a squeeze on consumer wallets due to the partial removal of petrol subsidies and price increases implemented by the brewers.
In addition, the mainstream segment of the beer market has come under pressure as consumers down-trade to cheaper products. We understand that the value segment is presently growing at around 30 percent y/y compared with the low single digits being delivered by the premium segment.
Pricing details have not been provided by the companies. However, given that CB trades on the OTC market at around N77.5 per share and outstanding shares of around 496.1 million shares, we estimate CB’s market cap at around N38.5 billion ($237m).
NB’s market cap is currently around $7 billion. As such, we estimate that market cap of the combined entity to be around $7.3 billion. Would expect NB to offer a high enough premium to prevent a GlaxoSmithKline-like saga like we witnessed last year.
Expected synergies from the combination include economies of scale from the joint purchasing of raw materials, but more importantly, the leveraging of established distribution channels of NB to ensure wider market penetration for CB products. We expect the market to react positively to the news this week. We value NB shares at N131.1. We rate the shares ‘underperform.’
