Deal decent for shareholders, but less choice for customers
ANHEUSER-BUSCH (AB) InBev has paid a reasonably full price for SABMiller which certainly passes some of the merger benefits to SAB Miller shareholders.
AB Inbev shareholders will be hoping that it can extract the planned benefits and overall for once I would have said it is a decent deal for both shareholders as AB InBev probably will extract the synergies and consolidate a declining market.
I say this because the majority of major acquisitions fail to extract planned synergies and more than half destroy value.
That said, AB InBev does have a good record with previous acquisitions. How- ever, expect substantial redundancies and cost savings over the next year. Product ranges are also likely to be rationalised allowing greater investment in the retained brands.
However for the customer, one in three beers will be produced by AB InBev as a result of this merger, which suggests less choice and less competition.
The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate. Microbrewers and their highly differentiated cask ales also continue to make progress. As a consequence cost, product and distribution rationalisation become an attractive way of increasing shareholder returns.
In major manufacturing operations economies of scale can be enormous which means breweries will be rationalised to focus on the largest and most modern.
Scope economies will be substantial too as head offices and country management teams are likely to be rationalised. Combined purchasing power should also realise substantial savings. AB InBev has a reputation and demonstrable track record of being able to effectively extract these savings.