Tuesday, October 13, 2015

Resistance is futile, says AB-InBev to SABMiller. 'Craft' beer should be wary.

This is not the actual logo of the combined entity; that is yet to be determined.
Graphic created by beer news website BeerPulse.

Pending details to be worked out, a vote by stockholders, and antitrust hurdles to cleared, the dirty deed is apparently done. Brewing conglomerate Anheuser-Busch InBev, the world's largest brewery (at 350,241,009 barrels annual production, 21% of total world volume) has become even larger, purchasing number two SABMiller (at 160,037,133 barrels, 9.6%) for $104 billion dollars. I'd call that playing with Monopoly money, pun intended.

Reuters, at Yahoo Finance, offered analysis.
  • The combined entity would account for nearly one-third of all beer sold in the world, with expected annual revenue of $64 billion.
  • The deal would rank in the top five mergers in corporate history, globally.
  • Anheuser-Busch InBev would pay $67 a share, 50% more than SABMiller's stock price yesterday.
  • The new group would combine AB InBev's Budweiser, Stella Artois and Corona lagers with SABMiller's Peroni, Grolsch and Pilsner Urquell. AB InBev would add Latin American and Asian breweries and enter Africa for the first time.
  • There are significant antitrust hurdles to any combination, particularly in the United States, where the companies would have about 70 percent of the beer market.
    • A deal would likely result in Denver-based Molson Coors acquiring SABMiller's 58 percent stake in their U.S. joint venture.
    • Any merged group may also have to sell interests in China, where SABMiller's CR Snow joint venture with China Resources Enterprise is the market leader.
    • It would also force change in the wider beverage sector, with SABMiller a large distributor of Coca Cola, while AB InBev has ties with rival Pepsi.

Quick thoughts on this, and maybe a bit trite. (There will be many more, and many more thoughtful.)

It's not quite a done deal, but it's significant step toward one. To put the scale of it in some perspective, when InBev purchased Anheuser-Busch in 2008, the purchase price was $52 billion, exactly half of today's merger. Of the forty largest breweries in the world, only one is American-owned (Constellation Brands, at #26, producing Modelo for the United States market, accounting for 0.5% of the worlds' production). If the output of all 'craft' breweries were counted as one brewery, at 21.7 million barrels, it wouldn't even make the list.

In response, there will be yawns and dismissive 'who cares?' from many in the 'craft' beer industry. Facing a juggernaut of this size, such attitudes would be foolish. For 'craft' breweries, wholesalers, and suppliers to say, "This won't affect me," is a blinders-on short-term mentality. There will be many intended and unintended consequences. Smarter minds than mine will immediately start thinking about the ramifications.

What of AB-InBev's ongoing purchasing of 'craft' breweries themselves (which, granted, may slow because of the debt incurred for this merger). More insidiously, what of AB-InBev's intervention in the supply and distribution side of 'craft' beer? What of AB-InBev's ongoing purchasing of distributors to allegedly squelch 'craft' distribution? What of the prodigious purchasing power of the combined behemoth? Induced shortages of certain varieties of hops and malt? Glass bottle and aluminum can shortages? And what of the significant pressures on the larger 'craft' breweries?

The merger may have little immediate effect upon 'craft' breweries in the U.S., especially with the probable anti-trust-forced re-arrangement of MillerCoors, and associated distribution. (And even that might be tricky. MillerCoors is a U.S.-only partnership between Molson/Coors and SABMiller.) Once AB-InBev/SABMiller, or whatever it will call itself, pays down its debt, it will return its glare, Sauron-like, upon 'craft' beer. What will happen then?

Keep brewing, but stay vigilant.

  • And what of the once-proud American brewing name of Miller? Does it disappear? Anheuser-Busch InBev SAB/Miller is a bit too clunky. Will the Anheuser-Busch moniker disappear?
  • The (U.S. Brewers Association has thought about consequences of the merger, but are not overly concerned.
  • The rankings and production volumes of the world's top 40 brewing companies: here. No American-owned brewery is in that list.

  • For more from YFGF:

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