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12.2013

Massachusetts Beverage Business

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archivedOnBeerReport

IS THE MEGA MERGER IN THE WORKS?

It’s a definite possibility that the colossal beer merger that’s been buzzed about for years could finally be happening.  With half the world’s beer produced by four big firms and few markets left for them to tap, the time may be right for a US$1OO-billion merger between the two largest, Anheuser-Busch InBev and SABMiller. This mega-deal is tipped by analysts as the most likely tie-up because of the other two, Heineken is family controlled and Carlsberg is protected by a trust. Talk that AB InBev might buy SABMiller is not new, but it paused in June 2O12 when the former announced a US$2O.1 billion deal to take over Mexican brewery Grupo Modelo. But now, with AB InBev planning to return to a comfortable pre-deal debt-to-EBITDA ratio of below two next year, industry experts are predicting the combination of its Budweiser and Stella Artois brands with SABMiller’s Peroni and Grolsch. Some expect a deal within a year.

AB InBev is market leader in North America, Mexico and Brazil. SABMiller would give it smaller Latin American markets such as Colombia and Peru, as well as Africa. The market overlap likely to upset regulators is in the United States and China, analysts say. AB InBev has almost half of the US market and would not be allowed to add SABMiller’s quarter share, held through the MillerCoors joint venture with Molson Coors. Selling the Miller stake is the obvious fix, although Molson would be the only realistic buyer and so not forced to pay top dollar.

Soft drinks may also cause a problem, as AB InBev is the largest Pepsi bottler in Latin America and SABMiller is a big Coca-Cola bottler. A combined entity would have to pick sides. Still, the key determinant for any deal is price. A SABMiller takeover would likely be the fifth-largest corporate acquisition ever. AB InBev may want to move fast before SABMiller gets more expensive. Another consideration is the US Federal Reserve’s likely decision soon to scale back its bond-buying program – expected to lead to higher interest rates that would make the deal more expensive to finance. SABMiller could try to make itself too big to buy by taking over its African partner Castel Group or Turkey’s Anadolu Efes, both of which it has stakes in.

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