The hot news item (here) is the $106 billion agreement for AB InBev NV [a Belgian firm] to acquire SABMiller Plc [a UK firm]. The proposed venture will control 1/3rd of the global beer market and 50% of global beer profits. This is the latest in a cumulative $90 billion in acquisitions following the buyout of a group of Brazilian investors of Brahma beer.
The final form of the firm will be a function of antitrust rulings in the US [surely MillerCoors and Budweiser won’t be allowed to merge] and in China [Snow Beer, partially owned by SABMiller, is by far the largest firm, but AB InBev has 14 breweries there, too].
A big question: why (if at all) can a merger of this sort add value? At first glance, all it does is rearrange who owns which brand. Will this allow higher prices? Are there breweries that are poorly utilized so that this can produce operating efficiencies? or large sales forces that overlap and can be pared? But unless they kill brands, there are no savings on advertising. So no gains to beer operations, no gains to shareholders, only one group of execs grabbing the bonuses of another. For the lucky few, that is a big chunk of income.
Now don’t forget that 1/3rd figure. Here’s an infographic from an Oct 12, 2015 Bloomberg article on markets where neither is dominant:
4 Comments
http://www.theguardian.com/business/2015/sep/19/robey-warshaw-tiny-bank-brewing-mega-merger
Pretty incredible that one of the primary advisors for SAB Miller is the nine person firm Robey Warshaw. This deal should bring in an incredible fee for the boutique bank.
Ay, so mergers are all about fees for financiers … maybe you are right. It’s not clear that employees, customers or AB InBev shareholders will benefit. In the short run SABMiller investors get a big premium [though the largest shareholders get stock and can’t sell for 5 years]. But from whence does that money come?
Although AB InBev will have to sell off assets, this merger could ensure global market dominance through access to growth markets in Africa and Latin America. In the long run, this could add value in the form of larger output and less expenditure towards securing new markets. Also, by dominating 1/3 of the market, could AB InBev potentially rise prices without losing significant business, as customers have fewer alternatives to turn to?
http://fortune.com/2015/10/15/sabmiller-ab-inbev-merger-beer-drinkers-lose/
Although this deal still has a long way to go in passing many regulatory standards in many countries over several continents, it seems to be strategically necessary for the continuation of AB InBev and large-scale beer manufacturing. If the deal is accepted, a WSJ article cites it as the largest this year and the fourth largest takeover in history. As we have discussed in class, AB InBev and SABMiller has a long history of M&A which has allowed the companies to grow rapidly and dominate distribution routes, control competition, and benefit from economies of scale. Even after all of the success through M&A, AB InBev today is experiencing a market often hindered by slow or negative growth. “In the U.S. and Brazil, which account for half of AB InBev’s total sales, beer volumes fell 3.9% over the first half of the year to 80.5 million barrels from 83.7 million barrels” (WSJ). Even worse, the beer giant is experiencing shrinking consumption in developing markets and the first shrinkage of this magnitude in 30 years. Although it may be a greedy strategy by the financiers and the executives, and playing devil’s advocate here, AB InBev’s takeover of SABMiller may be the solution that puts the beer giant back in the driver’s seat. It will be a long road and nothing is guaranteed at this point, but I hope that legislation and the deal’s approval process will be mindful of consumers, employees, and the well-being of the market.
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