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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.

David Nicklaus is a business columnist for the St. Louis Post-Dispatch. Readers may send him email at

(c)2015 St. Louis Post-Dispatch. Distributed by Tribune Content Agency, LLC.

David Nicklaus: Retirement Debate Is All About Protecting The Small Investor

By David Nicklaus, St. Louis Post-Dispatch (TNS)

In the great retirement savings debate, all sides say they want to protect the little investor. They differ on what he or she needs protection from.

President Barack Obama thinks the danger is unscrupulous brokers. His Council of Economic Advisers published a study last week estimating that families lose $17 billion of their retirement savings every year to hidden fees and adviser conflicts of interest. The president ordered the Labor Department to issue a rule holding all retirement advisers to a higher standard.

What Obama is proposing is a fiduciary rule. It would require anybody managing retirement assets, from a company 401(k) to an Individual Retirement Account, to act in the investor’s best interest.

Most investors probably think their adviser already meets that standard — and some do. Brokers, however, are only held to a lesser, suitability standard. That allows firms to sell you an investment that’s most profitable for them, even if it’s not the best one for you.

The securities industry, predictably, would like to keep it that way. Industry groups issued statements saying that the proposed rule would hurt the same small investors whom Obama wants to protect.

In the industry’s version of the future, the little guy may lose access to any financial advice — unless, of course, brokers are allowed to continue with their current conflict-riddled business model.

If that’s the best defense the industry can muster, it’s on pretty shaky ground.

For one thing, it’s not clear that costly, conflicted advice is better than none at all. FINRA, the industry’s self-regulatory body, warned advisers last year to stop misleading people about IRA rollovers. Often, investors are better off staying in their old company’s 401(k).

Secondly, individuals can find sources of unbiased, low-cost advice. Plenty of advisers charge either a flat fee or a percentage of assets. If your account isn’t big enough to make their services worthwhile, a new breed of so-called robo advisers, including Wealthfront and Betterment, suggest asset allocations for fees of about 0.25 percent of assets. Charles Schwab is launching a similar service for people with as little as $5,000 to invest, and other traditional firms are likely to follow.

Susan Conrad, a vice president at Plancorp in the St. Louis area, is confident that people with modest retirement savings will still be able to find advice. “Our industry has always had to morph and change to align with regulations and evolving best practices,” she said. “The industry will create products that are reasonable for the smaller investor.”

The evidence keeps piling up to show how investors are damaged by industry practices. Thomas Doellman, an assistant professor of finance at St. Louis University, did research on 6,800 401(k) plans and tried to determine why some performed significantly worse than others.

The poor performers had a couple of characteristics in common: Their fees were above average, and they tended to be run by administrators, such as banks and brokerage firms, that used their own proprietary investment funds.

“This is an obvious conflict of interest,” Doellman notes, but it’s permissible under current rules. The money managers are allowed to make money at 401(k) investors’ expense, and that’s a shame.

Small investors will be helped, not hurt, by the protections Obama is proposing. For the financial industry to argue otherwise is not only disingenuous, it’s dishonest.

© 2015 St. Louis Post-Dispatch, Distributed by Tribune Content Agency, LLC