If you had placed bets then on which of those companies was the most likely to succeed, SAB would probably not have been high in the pecking order. All the others seemed to have something particular going for them: Anglo American was big and already had plenty of international experience; BHP Billiton had smart management and an entrepreneurial streak; Dimension Data (Didata) operated in a red-hot sector and Investec occupied a lucrative niche.
But there were other problems too. The market was cheered and intrigued by Billiton's listing and there was a fulsome welcome for Anglo. But by the time SAB listed, with Didata and Old Mutual waiting in the wings, the London market was beginning to tire of the South African influx. In 1999, the rand was beginning to weaken before its more dramatic implosion in 2001.
Also for the newcomers, a London listing involved a gambit, which some thought a touch underhand. The large companies that were relocating their headquarters, but not really their businesses, were at least as much interested in being on the FTSE 100 as being listed on the London market. The London market was and is dominated by pension funds, whose conservative mandates often meant investing in tracker funds. Getting onto the FTSE 100 more or less forced these funds to invest, underpinning the share price and helping to make the company's shares a more fungible acquisition currency. But for every South African import, an existing company was being forced out of the index.
With the politics questionable and the currency falling, institutions and investors were not sure whether the South African influx was, on balance, adding to or subtracting from the overall market. And of the newcomers, SAB seemed to have the least reason to be there. It was smaller than the most of the others, only just making it onto the FTSE 100. At the time, it was listed 88th, but not before dropping to 94th just before the listing date as negative broker notes hit the market.
Chairman Meyer Kahn recalls: “To say that our reception in the UK was less than exciting is probably true. We were seen as this cheeky, arrogant South African beer company that was coming to join the big boys on the block, and using a London listing. For starters, we were unknown. The only people who really knew us were some of the major banks in the UK, many of whom now don't exist. It was at a time when the rand was weakening considerably, and our earnings were generally rand based, so we weren't the most welcome bride at the wedding, understandably so,” he says.
Yet, now that the decade is over, there is no doubt that of the six, SABMiller has won. Of the five London emigres that survive intact, its rebased share price over a five-year period is 80 percentage points higher than its nearest rival, Anglo American (although that would not have been true a year ago). It's now 17th on the FTSE 100 and it brews just on five times more beer than it did in 1999. The number of staff, brands and breweries have all more than doubled. But the really incredible thing is number of countries in which it operates: from 21 when it listed, it now brews beer in 60 countries, basically every other substantial country in the world.
It was the consequence of a complex interplay of several different factors — some within SABMiller's control, some not. Having a tested management certainly played a role. Kahn notes that SAB prospered in tough circumstances in apartheid SA, through sanctions, high inflation and political strife. By the time it ended, SAB managers had seen it all.
It helped that the beer market was expanding globally, and it helped a lot that it was expanding faster in emerging market countries — SAB's main area of expertise — than elsewhere. It helped that the Soviet Union imploded, providing new opportunities and new markets for ambitious companies.
But none of those factors alone can explain the company's success. Managers within SABMiller often put it down to their unique “culture”. In fact, SABMiller executives relish talking about their “culture” in a way that can be a touch geeky to the uninitiated. It's not unusual for any company to claim it has a particular culture, but it's unusual for a company to carry it off without drifting into a kind of management-speak hyperbole.
But SABMiller's culture is far from management geekery; it's practical and simple. Often it revolves around aphorisms. For example, Kahn says: “We see our business as a wheelbarrow. If you stop pushing it, it's going to stand still. So we push the wheelbarrow.”
Kahn is himself a purveyor of that culture. This is entirely unsurprising, as he has been with the company and its predecessors since 1966. He was group MD for 13 years, and has been chairman since listing, apart from his two and a bit years working for the South African Police Service.
Kahn's view of the London listing is deceptively simple. “In those days, we had 98% of the beer market in SA, so you did not have to be a genius to know that, at the very best, we were vulnerable, and we could only grow in line with the consumption growth in SA. Obviously, the access to capital because of exchange controls was important. And then I would be lying if I said that moving outside of your home base doesn't have a minor touch of managerial ego; if you are champion in your own country, you want to test your mettle against the best around the rest of the world.”
What mistakes were made? “Well, you don't chop a lot of wood without getting splinters,” he says. But then the only mistake that he will admit to is the same mistake made by SABMiller's competitors — overpaying. “At the time of the rationalisation of the international beer markets, everyone one of us, because it was a bidding war, paid top dollar for businesses that can't justify that price under today's circumstances.”
What about the company's 50/50 partnership in China; in retrospect, didn't SABMiller give away too much equity? Absolutely not, he says. “That wasn't a mistake; that was a godsend. We would not be 10% of our size without our partnership with China Resources.”
The key moment over the past decade for the company was the Miller acquisition, but also the fact that Altria was prepared to take SABMiller shares, making the deal affordable for SAB. “Millers was a very sick business, and Altria were keen to exit; because of our status in emerging markets, where the currencies tend to be fairly volatile and weak, we took a view that to strengthen our hard currency average base couldn't do us any harm. It worked out well for them and for us; that really gave us the credentials to move ahead.”
Kahn's advice for those on the way up is simple: read books about war. “Market share is nothing other than territorial advantage, so if you want to know about market share, you should read books on war; I don't mean to be demeaning or anticompetitive — but just look at the strategy that we have followed since time immemorial that has worked for us superbly. “We believe in zones, or countries or regions. What you do is you go in and create a beachhead, you resource the beachhead, and then you extend your territorial war in ever widening circles.”
Yet the secret of SABMiller's success has not only been its beachhead strategy, but also its essential modesty. “We take our business very seriously, but not ourselves,” says Kahn.
Source: Business Day
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