Asahiís Beer Buy: Trying to Escape Demographic Destiny

Anheuser-Busch InBev is getting the better of Asahi of Japan on three middling beer brands. While the $2.9 billion price tag is a bit lower than expected, the Japanese brewerís acquisition of Peroni, Grolsch and Meantime clocks in at what may be some 50 times one measure of operating profit. The deal is only justifiable under the demographic logic of the buyerís shrinking home country.

It could be worse: The Yomiuri newspaper in Japan reported last month that the $14 billion Japanese brewer was limbering up to pay as much as $3.4 billion for the brands, the sale of which is intended to ease antitrust clearance for AB InBevís takeover of SABMiller. Investors pushed the value of Asahiís shares down 8 percent on Wednesday in Tokyo, before the deal was announced.

Asahi Group Offers to Buy Peroni and Grolsch for $2.9 Billion
But even at the lower price, Asahi is paying up for some so-so businesses. Financials provided by the acquirer show combined earnings before interest and tax at Italyís Peroni and the Netherlandsí Grolsch fell by more than a quarter to around 50 million euros in the fiscal year that ended in March 2015. Hold that figure steady, and assume that the tiny but fast-growing British craft brewer Meantimeís operating profit doubles, and it pegs the value of Asahiís offer at roughly 50 times the combined EBIT, well above the 15 times Asahi itself fetches.

Using different metrics, the deal looks less frothy. Leave out depreciation and amortization, and Asahi is paying around 15 times the midpoint of various estimates of the three brandsí Ebitda for the year ending in March. Thatís still higher than Asahiís own 10 times Ebitda multiple. And the Japanese buyerís tiny footprint in Europe means there are few obvious opportunities to wring out cost savings.

True, Japanese companies have a lower cost of capital than many of their Western counterparts. Itís also plausible that buying a clutch of European brands with decent cachet ó SABMiller considered them among its premium marques ó and distribution could eventually help Asahi increase sales of its own brand outside its aging and economically stagnant home market.

Still, like Nikkeiís recent $1.3 billion purchase of The Financial Times or Suntory Holdingsí $16 billion deal for Jim Beam, Asahiís latest acquisition looks like an attempt to escape demographic destiny.