Mergers and Beer

On Thursday 25 October AB Inbev announced that it will cut its dividend payment in half. In the background is its acquisition of SABMiller (and the accompanying spinoff of Miller Coors to the Canadian firm Molson, because even with a pro-business bias, the US Fair Trade Commission would not allow a merger that would give a single firm a 70% market share.

  • How has that merger fared?
  • Or is the dividend cut due to factors unrelated to the merger?

One piece of information is what’s been happening to the overall market. If we look at market shares, we can calculate that the main slice on which AB Inbev focuses changed by -2.3% in 2017. Alternatively, “regional” brewers production peaked at 19.0 million barrels in 2015, but was down to 17.9 million in 2017 (or -5.8% over 2 years); data from the Brewers Association.

  • So did the AB Inbev M&A strategy make sense?
  • Or did it merely overpay?
  • Or has it hit a temporary rough patch (eg, rising interest rates making it more important to repay than to rollover debt)?
  • Or did it fail to foresee the extent to which beer demand was falling so that it may be better off post-merger, but the merger wasn’t helpful enough to offset the secular decline in beer consumption?

Articles to read:

  1. AB InBev Cuts Dividend… (St Louis Post-Dispatch)
  2. AB InBev’s $100 Billion Hangover
  3. Bud (Dividend) Light Or Stella(r) Bargain?
  4. Merger cost synergies on Seeking Alpha
  5. Optimistic take on growth vs debt and on growth in China on Seeking Alpha and on other international segments.

2 thoughts on “Mergers and Beer

  1. “Luxury” beers have continued to grow and capture market share compared to mass produced domestic beers. This makes sense as the economy has improved, price of craft becomes less important, as well as shifting consumer tastes. A decrease in dividend payouts likely reflects the fact that market shares are falling for AB inbev as craft brewers take over. This shift coupled with the massive amount of capital required to complete the merger has led to InBev shifting away from high dividend payouts.

  2. In addition to the growth of the craft beer industry, several foreign currencies have lost a lot of their value. While the U.S. is AB Inbev’s primary market, foreign countries serve as emerging markets for the beer company. Markets including Brazil and Argentina continue to lose value in the foreign exchange market, crippling AB Inbev’s profits abroad. While I think the primary issue for AB Inbev is the pervasion of small craft brewing upstarts, one should not overlook the present currency issues in secondary markets.

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