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AB InBev (BUD) Sells African Soft Drinks Unit to Coca-Cola

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Anheuser-Busch InBev SA/NV (BUD - Free Report) , alias AB InBev, is hitting the right note and well on track to satisfy the regulatory conditions for its recently concluded $100 billion buyout of SABMiller Plc. Going with the flow, it signed its third asset sale agreement in a row. The company has agreed to divest its 54.5% stake in Coca-Cola Beverages Africa (“CCBA”) to the soft-drinks giant The Coca-Cola Company (KO - Free Report) for $3.15 billion.

The deal will include the sale of CCBA’s operations in South Africa, Namibia, Kenya, Uganda, Tanzania, Ethiopia, Mozambique, Ghana, Mayotte and Comoros. Further, the deal includes the sale of AB InBev’s interest in bottling businesses in Zambia, Zimbabwe, Botswana, Swaziland, Lesotho, El Salvador and Honduras, for an undisclosed amount.

The deal is expected to be completed by the end of 2017, following regulatory approvals. It is likely to help in the expansion of the Coca-Cola Company’s footprint in the aforementioned countries. However, the company revealed that it will temporarily hold these businesses until it finds a suitable refranchising partner. Consequently, it intends to account for these assets as discontinued operations for the time being.

Coming back to AB InBev, the company recently signed two other asset sale agreements earlier this month, aimed at fulfilling the antitrust commitments under the SABMiller acquisition. These include a deals to offload some of SABMiller’s eastern and central European businesses to Japan’s Asahi Group Holdings, Ltd. for €7.3 billion (or US$7.8 billion), as well as SABMiller’s 26.4% stake in Distell Group Limited to Africa’s largest pension administrator, the Public Investment Corporation Limited.

Further, the company had signed many other deals of similar nature in the recent past in various countries to win regulatory nod for the SABMiller buyout. The most prominent one among those deals is definitely the sale of SABMiller’s 58% stake in the MillerCoors LLC joint venture (JV) to Denver-based Molson Coors Brewing Company (TAP - Free Report) for $12 billion. This makes Molson Coors, which previously held a 42% stake in MillerCoors, the 100% stakeholder in the JV. Molson Coors now has full rights to all the brands in the MillerCoors portfolio for the U.S. market, including Redd’s and import brands such as Peroni and Pilsner Urquell.

However, we note that despite these divestitures the combined mega-brewing company still holds the top spot in the beer industry, controlling about one-thirds of the global beer market. This behemoth, which accounts for nearly 30% of global beer sales and 46% of global beer profits, leaves Heineken NV (HEINY - Free Report) trailing in the second spot, with only 11% share of the global beer market.

On the other hand, in the U.S., AB InBev retains its leading position with 44% share in the beer market, while Molson Coors has grown incredibly to become the second-largest brewer controlling about 25% market share.

While these iterations raise the optimism of investors, we note that shares of AB InBev have dropped nearly 17.1% year to date. Moreover, this Zacks Rank #5 (Strong Sell) stock has underperformed the Zacks categorized Beverages – Alcoholic industry which has witnessed a decline of 5.4% year to date.

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