Megamerger Makes Sense In Mature Beer Industry
By David Nicklaus, St. Louis Post-Dispatch (TNS)
Here we go again. The world’s largest beer company wants to be even bigger, and it has a rival brewer in its sights.
SABMiller, the latest target for the acquisitive Brazilians who run Anheuser-Busch InBev, is not much like the old Anheuser-Busch, which InBev gobbled up in 2008. It’s bigger, it’s global in scope and its cost structure is not nearly as flabby.
Still, most observers seem to regard the latest beer merger — which so far isn’t even a formal proposal — as all but a done deal. What makes this combination so compelling, and why is it happening now?
First, deals are what A-B InBev Chief Executive Carlos Brito and his investors, led by Jorge Paolo Lemann, do. They’ve digested their last big purchase, of Mexico’s Grupo Modelo in 2013, and are ready for what they see as the logical next step.
Second, SABMiller is vulnerable. It has no controlling family shareholder who could block a deal. SABMiller was rebuffed in a 2014 attempt to buy European rival Heineken, and its shares had fallen 19 percent in the past year.
Third, all the big beer companies are under pressure. Their most lucrative markets, the U.S. and Europe, aren’t growing and their big brands are losing market share to craft brews.
“There’s a lot of chaos in the market and the best way to effectively sell your product is to have scale,” says Tom Pirko, managing director of California consulting firm Bevmark. “It’s a critical-mass game, and SABMiller is standing exposed.”
The big question is whether the companies can agree on a price. April Scee, an analyst at Sterne Agee CRT, wrote a report predicting a price of between $100 billion and $120 billion for SABMiller, which would rank among the five biggest acquisitions in history. It also would be at least a 33 percent premium over the company’s value before A-B InBev’s overture became public.
That’s a lot, especially since the news wasn’t a complete surprise. Investors have been talking about this match off and on for at least four years.
Brito, though, will pay plenty for something he covets.
“SABMiller is worth a lot more to A-B InBev than as an independent company,” says Bill Finnie, a former Anheuser-Busch executive and adjunct professor at Washington University’s Olin Business School. “It will slash corporate overhead costs and use its larger size to cut operating costs significantly. They are world class cost cutters.”
Antitrust regulators may be the deal’s most significant obstacles. A-B InBev is almost certainly prepared to sell SABMiller’s interest in MillerCoors, its U.S. joint venture, but the Justice Department may want more than a sale. Pirko thinks the government may take a hard look at A-B InBev’s distribution network, seeking concessions to make sure that MillerCoors remains a viable competitor and that craft brewers can get their products into bars and stores.
A-B InBev also may have to sell brands in China and other countries, including Peru and Ecuador. Negotiations will take time, but Pirko doesn’t think any one country can derail a deal that makes global sense.
“The reason this deal is going to go through is that it is a classic win-win,” he says. “It is in the interests of both parties.”
The only losers may be the world’s other large brewers. They’ll face a behemoth competitor with an unparalleled cost structure and marketing budget, while craft brands nibble away at their profits. It’s no fun to be in the middle feeling a squeeze from both ends.
ABOUT THE WRITER
David Nicklaus is a business columnist for the St. Louis Post-Dispatch. Readers may send him email at email@example.com.
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