Deal on tap?
Beer merger would make one of world’s largest companies,
A beer merger of record proportions is brewing as Anheuser-Busch InBev, the maker of Budweiser, Corona and Labatt’s products, confirmed Wednesday it has made a takeover approach to SABMiller PLC, the owner of Miller Genuine Draft and Grolsch. The deal would be the biggest in the industry’s history, creating a $245-billion (U.S.) global company. Tall boys AB InBev has reportedly been circling SABMiller for a while. The get-together of the world’s two biggest suds makers would hand control of nearly one-third of global beer supply to one company and trigger an intense antitrust review. The mega deal could draw objections from regulators worried the deal might stifle competition and lead to higher prices.
But if it goes through, it would lead to some of the world’s most iconic beers coming under one roof, namely top guns Budweiser and Miller.
The combination would create one of the world’s top 10 companies and surpass Procter & Gamble Co. and Nestle SA in market value.
The tie-up is considered end game for global beer mergers at a time when microbreweries are cutting into their market share and options for consolidation narrow in a stagnant industry.
Analysts say the combination would help both firms combat a slowdown in developed markets such as the U.S. and Europe, where drinkers are seeking out craft brews, wine and spirits instead of beer.
AB InBev, whose market value is more than double that of SABMiller, said Wednesday it intends to make an offer for the company. The pair would have combined annual sales of about $81 billion.
A combination of the beer makers had been seen as likely for years as they have limited overlap and are not controlled by a family foundation like their main competitors, Heineken NV and Carlsberg A/S.
AB InBev has boosted revenue more than fivefold in the past10 years with the help of almost $100 billion in acquisitions. Its growth is now set to slow over the next five years, estimates compiled by Bloomberg show.
Weakening economies in Brazil and China, two of the growth engines for brewers in recent years, may have hastened AB InBev’s approach, Ross Colbert, an analyst at Rabobank International. The resulting drop in beer consumption in those emerging markets “is driving the push for greater consolidation,” he said.
An acquisition of SABMiller would give AB InBev access to more than $7 billion of revenue in Africa, with brands including Castle lager, and almost $4 billion of sales in Asia, reducing AB InBev’s dependence on the Americas and Brazil. Medium-sized brews The deal means second-tier companies such as Carlsberg and Heineken will face a massive rival.
“As your competition gets bigger and bigger, it gets tougher and tougher to compete,” said Andrew Holland, an analyst at Société Générale in London.
“Heineken and Carlsberg face an enlarged ABI-SAB, and notably a management team that have an extremely good track record.”
One of the biggest beneficiaries of the big beer merger could be Molson Coors Brewing Co., which will have an opportunity take full control of the MillerCoors joint venture formed with SABMiller in 2007 in the U.S. to market all of their products.
Analysts say the new giant will probably off-load its stake in MillerCoors to pass muster with regulators. The obvious buyer is Molson Coors, which already owns a 42-per-cent economic interest in the company with a roster of popular brands, including Miller Lite, Coors Light and Blue Moon — and has the right of first and last offer.
“It’s a real opportunity for Molson Coors,” Philip Gorham, an Amsterdambased analyst at Morningstar Inc., said in a phone interview. “It’s pretty obvious that Molson Coors is the only buyer in town. Generally, that means they acquire the assets at a good price.”
While gains and operational cost savings would be bigger if Molson buys all of SABMiller’s 58-per-cent stake in the joint venture, the family-controlled company could prefer to continue working in a partnership, said Ian Shackleton, an analyst at Nomura Holdings Inc.
He sees a scenario where Heineken NV and Molson buy the brand.
“There are quite close relationships between Molson and Heineken, some family links if you go back way into the mists of time,” he said. “In addition, they have some trading links. In Canada, Molson distributes Heineken products, and they actually widened that agreement in the last year. It’s not a case of these guys are totally enemies, quite the opposite.”
If Molson were to make the purchase alone, the price of at least $10 billion is nearly the entire company’s market cap, he said. Heineken is three times the size of Molson and would be better equipped for financing a deal.
“We have seen the news, but have no comment,” said Colin Wheeler of Molson Coors in an email to the Star.
A deal between AB InBev and SABMiller is unlikely to otherwise spur major M&A activity for Carlsberg and Heineken beyond opportunities that may arise as the two larger companies divest assets for regulatory approval, said Trevor Stirling, an analyst at Sanford C. Bernstein. Half pints Craft brewers such as Darren Smith of Lake of Bays Brewing Company are watching the potential merger with a cautious eye.
“It would obviously be concerning for us,” said Smith, also vice-chairman of Ontario Craft Brewers.
“They already have enough market control in Ontario and around the world,” he said, adding it makes it more timely that the provincial government is in the midst of an overhaul of how beer and wine are sold.
Small-scale craft brew is one of the only growth segments in the beer industry. In 1981, Canadians drank an average of 99.69 litres of beer per year. In 2014, we chugged 63.35 litres per person.
Meanwhile, wine and spirits’ share of the alcohol market has been rising steadily. Those trends are mirrored in other “mature” markets such as the U.S. and U.K.
Going against those big-picture trends, however, is craft beer’s rise. At the LCBO, sales of Ontario craft beer have posted double-digit increases in both value and volume for the past decade.
Alan Middleton, marketing professor at York University’s Schulich School of Business, said microbrewers from Lake of Bays to Steam Whistle would likely benefit from the merger, as the giant corporation would look to cut costs in established markets such as Canada and the U.S. and funnel profits to growth targets such as Asia and Latin America.
“They won’t be pushing any new products here, and they’ll be spending less on promotions and advertising,” which he said paves the way for a stronger market presence of craft brewers.
Molson and Labatt employees, meanwhile, “will be nervous” at the prospect of a deal that would likely involve cost cutting and workforce reductions, said Middleton.
A Labatt spokesperson in Canada had no comment on the potential merger. With files from Star wire services