Morgan Stanley Weighs In On AmBev M&A Rumor

Recently, rumors have surfaced in both The Daily Telegraph and Financial Times suggesting that AmBev ABEV may be interested in merging with SABMiller SBMRY.

According to Morgan Stanley analyst Lore Serra, the appeal of SABMiller is its exposure in emerging markets (Africa, India, Vietnam, China) and its potential for additional per capita consumption. However, Serra notes a high price to access these markets due to: high trading/deal, significantly lower synergies than recent ABI deals, a complex operating structure, and the potential fall-out to ABEV from a potential inter-company transaction.

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In addition, Morgan Stanley thinks SABMiller’s margins in LatAm may be similar to ABI’s, not leaving much room for improvement, and the per capita consumption in Columbia and Peru are high, not low.

In short, the note is skeptical that AmBev will decide to pursue a merger through an inter-company purchase of SAB’s assets in LatAm. Though they do not rule out the possibility entirely, the analysts note, “a lower probability than the market consensus… because we are hopeful that ABI realizes [the] potential concerns about minority rights at ABEV might have lasting consequences.”

Shares of both companies are unchanged in Tuesday’s pre-market trading.