1. The CONSOLIDATION GAME IS NOT OVER
EUROPEAN LARGE CAPS
The CONSOLIDATION GAME IS NOT OVER
For Professional Investors
Marketing Communication
Andrew King
London, 2 October 2017

2. Industry consolidation: beer
SABMiller, Carlsberg & AB Inbev
Nov 2015: SAB Miller acquired by AB Inbev
GBP 79 billion
Mar 2000: S&N buy Kronenbourg EUR 2.7 bn
May 2000: Interbrew buy Whitbread EUR 0.7 bn
Jun 2000: Interbrew buy Bass EUR 3.6 bn
Nov 2000: Carlsberg buy Feldschlossen EUR 0.5 bn
Aug 2001: Interbrew buy Becks EUR 1.8 bn
Jan 2002: Coors buy Carling EUR 1.8 bn
Feb 2002: Heineken buy Bravo Russia EUR 0.4 bn
Feb 2002: S&N buy Hartwell Finland EUR 2.0 bn
Mar 2002: Molson buy Kaiser EUR 0.9 bn
May 2002: SAB buy Miller EUR 6.2 bn
May 2003: SAB buy Peroni EUR 0.5 bn
Jan 2004: Carlsberg buy Holsten EUR 0.4 bn
Mar 2004: Interbrew buy Ambev EUR 8.6 bn
Jun 2004: Anheuser Busch buy Harbin EUR 0.5 bn
Aug 2004: Interbrew buy Sun Interbrew EUR 0.5 bn
Jul 2005: SAB buy Bavaria EUR 6.3 bn
Nov 2007: SAB buy Grolsch EUR 0.9 bn
Apr 2008: Heineken/Carlsberg buy S&N EUR 13.7 bn
Jul 2008: Inbev but Anheuser Busch EUR 38.9 bn
Jan 2010: Heineken buy FEMSA EUR 5.2 bn
Sep 2011: SAB buy Fosters EUR 8.3 bn
Apr 2012: Molson Coors buy Starbev EUR 2.6 bn
Sep 2012: Heineken buy Asia Pac. Brew EUR 3.3 bn
Feb 2013: AB Inbev buy Modelo EUR 15.5 bn
Jan 2014: AB Inbev buy Oriental Brew. EUR 4.3 bn
Nov 2015: AB Inbev buy SAB Miller GBP 79.0 bn
Feb 2017: Heineken buy Brasil Kirin GBP 0.6 bn
LONDON
Y:\FIMGroup\United Kingdom\European Equities Large Cap\HHI\Consumer Staples\Beer
Sept Beer Master HHI
Source: BofA Merrill Lynch, Canadean and BNP Paribas Asset Management, October 2016
European Equity Select
[Presentation name]-[Date]

3. The importance of industry structure
Identifying pricing power
The global beer industry structure and the profitability of the four largest brewing companies
Y:\FIMGroup\United Kingdom\European Equities Large Cap\HHI\Consumer Staples\Beer
Sept Beer Master HHI
Source: BofA Merrill Lynch, Bloomberg and BNP Paribas Asset Management, May 2017
European Equity Select
[Presentation name]-[Date]

4. Investment philosophy
Practical application of the Herfindahl–Hirschman Index (HHI)
The global beer industry structure and main brewers share prices
November 2000 to mid 2017, share prices indexed to 100 and in EUR
LONDON
U:\TML\Factset_definitions\Flipbooks
Big4 brewers vs MSCI index chart_tml
Source: FactSet and BNP Paribas Asset Management, as of July 2017
European Equity Select
[Presentation name]-[Date]

5. Consolidation breeds consolidation
Global acquisition volumes as a % of total market capitalisation
Source: Bloomberg, MSCI, Datastream, SG Cross Asset Research / Equity Strategy, April 2017
European Equity Select

6. Industry consolidation: coatings
Unsolicited approach by PPG for Akzo Nobel
Deal overview
Deal value
Jul-07
PPG buys SigmaKalon from Bain Capital
EUR 2.2 bn
Aug-07
Akzo Nobel buys ICI
USD 16.2 bn
Sep-08
Endless (private equity) buys Crown Paints from Akzo Nobel
GBP
70 mn
May-11
PPG buys Dyrup A/S
EUR 135 mn
Jun-11
Akzo Nobel buys Schramm
EUR 142 mn
Hempel buys Crown Paints from Endless
GBP 140 mn
Nov-12
Sherwin-Williams agrees to buy Comex Mexico
USD 2.34 bn
Dec-12
PPG buys Akzo Nobel North America architectural coatings
USD 1.05 bn
Sep-13
Sherwin-Williams buys only US and Canadian operations of Comex
USD 165 mn
Nov-13
Sherwin-Williams terminates deal to buy Comex Mexico unit due to anti-trust
Jun-14
PPG buys Comex Mexico
USD 2.3 bn
Feb-16
Akzo Nobel buys industrial coatings business from BASF
EUR 475 mn
Mar-16
Sherwin-Williams bids for Valspar
USD 9.3 bn
Mar-17
PPG launches an unsolicited bid for Akzo Nobel
EUR 22.4 bn
Source: BNP Paribas Asset Management as of April 2017
European Equity Select

7. Industry consolidation: agrochemicals
Bayer: emergence of a global leader in a consolidating industry, agrochemicals/seeds
Deal overview
Deal value
Dec-15
Merger between DuPont and Dow
USD
130 bn
Feb-16
ChemChina bids for Syngenta
43 bn
Sep-16
Merger between Bayer and Monsanto
66 bn
The US$ 62bn cash offer for Monsanto by Bayer is a hefty price to pay. As it was unexpected, it explains the market’s initial negative reaction to the deal.
We actually do not necessarily agree with the markets poor assessment of the Monsanto assets. This potential deal will give Bayer the global leadership position in agricultural chemicals. We can envisage the competitive advantage that can be derived from bundling all farmers agricultural inputs – seeds and traits, herbicides and pesticides - under an integrated offer.
The combined entity will be significantly enhancing to Bayer’s competitive advantage and to profitability. We believe this might well be a better source of acquired growth than in a competitive pharma
The cash offer will increase the gearing of Bayer significantly. However, the ongoing consolidation in this sector can justify the price: ChemChina is bidding for Syngenta and Dow for DuPont.
Source: BNP Paribas Asset Management as of September 2016
European Equity Select

8. Industry consolidation: industrial gases
2015: Air Liquide/Airgas, 2016: Linde/Praxair
Industrial gases industry structure
Deal overview
Deal value
Mar-06
Linde acquires BOC
GBP
8 bn
Nov-15
Air Liquide acquires Airgas
USD
10.3 bn
Nov-16
Praxair announced planned merger with Linde
65 bn
Source: Deutsche Bank, Spiritus Consulting, BNP Paribas Asset management, September 2016
European Equity Select

9. Industry consolidation: consumer health
Bayer and Reckitt Benckiser
Deal overview
Deal value
May-14
Bayer acquires Merck consumer health
USD 14.2 bn
Apr-14
GSK and Novartis announce a merger of their respective consumer health business, pro-forma sales £6.5bn
Dec-15
Sanofi and Boehringer Ingelheim (BI) announce an asset swap whereby Sanofi acquires BI’s consumer health division valued at €6.7bn + cash payment of €4.7bn against Sanofi’s animal health business
EUR 11.4 bn
Feb-17
Reckitt buys Mead Johnson
USD 17.8 bn
Source: BNP Paribas Asset management, September 2016
European Equity Select

10. Industry consolidation: FMCG – food & HPC deals
Unilever
2006: Cadbury Schweppes sells
European soft drinks to Lion
Capital /Blackstone EUR 1.85 bn
2007: Danone buys Numico USD 16.8 bn
2008: Mars buys Wrigley USD 23 bn
2009: Lion Capital /Blackstone sell EUR 2.6 bn
‘Orangina Schweppes’ to
Suntory
2009: Kraft buys Cadbury USD 21.4 bn
2012: Nestle buys Pfizer nutrition USD 11.8 bn
2013: 3G & Berkshire buy Heinz USD 28 bn
2015: Heinz buys Kraft Foods USD 55 bn
2016: Danone buys WhiteWave USD 12.5 bn
Source: Unilever
European Equity Select
[Presentation name]-[Date]

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