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AB InBev-SABMiller merger: you win some, you lose beer

December 1, 2015
Food & Drink

The Anheuser-Busch InBev and SABMiller merger has at last coalesced, but though the two month period of extended discussions and negotiations has ended, AB InBev now faces the uphill battle of winning regulatory approval to go ahead with the consolidation with SABMiller.

The Belgium-based brewer made the first move to appease U.S. anti-trust authorities with the announcement that SABMiller is selling its 50% voting interest and 58% economic interest in MillerCoors in the country to Molson Coors, its partner in the joint venture, for around $12 billion. The deal gives Molson Coors the global rights to the Miller brand, and also the right to continue selling brands it currently holds in its portfolio in the U.S. (MillerCoors), including Peroni and Pilsner Urquell.

We have a $120 price estimate for Anheuser-Busch InBev, which is below the current market price.

Apart from the U.S., the AB InBev-SABMiller merger, estimated to close in a year’s time, is bound to be under the scrutiny of regulatory authorities in China, Europe, Latin America, Australia, and India. The third largest takeover in history is now subject to regulatory and shareholder approval, following which, the world will see the creation of the first truly global beer company ? as AB InBev proclaims. The combined revenues for the company will be around $64 billion, and EBITDA will stand at $24 billion, but this doesn’t consider divestitures or other restructurings that may be required in relation to the combination. Nonetheless, the new massive brewer will control a significant portion of global beer volumes even after the divestitures — around 29%, as estimated by Euromonitor.

And now, AB InBev might be looking to get regulatory approval in Europe by selling off Peroni and Grolsch brands — two of the four global brands in SABMiller’s portfolio. Losing these brands will be a downer for SABMiller, in terms of both volumes and profitability. SABMiller’s net producer revenue in the U.K. grew by 4% on a constant currency basis in fiscal 2015 (ended March), on the back of a strong double-digit volume growth of Peroni Nastro Azzurro. In Australia too, Peroni Nastro Azzurro achieved volume growth in fiscal 2015, representing 8% of the country’s premium imported beer segment. As these represent brands selling in the imported premium segment, they carry hefty margins ? which AB InBev will not gain from, if it sells off Peroni and Grolsch. But this will be part of the price to pay as the Belgian brewer attempts to assure a hassle-free combination with SABMiller.

In China, too, SABMiller has a joint venture called CR Snow, with China Resources Enterprise, which has a leading 23% volume share in the country’s beer market. Antitrust issues might call for Anheuser to sell off SABMiller’s partnership deals in the country. In addition, while SABMiller is a key Coca-Cola bottler in Africa, AB InBev bottles PepsiCo beverages in Latin America, another potential conflict of interest.

The sale of SABMiller’s interests in MillerCoors saw the loss of the Miller brand, which is one of the highest-selling beer franchises in the world, with a strong brand recognition. Losing a global brand which holds significant importance to the SABMiller company could be a potential bad move. In 2013, due to anti-trust issues following the Grupo Modelo acquisition, Anheuser had to give up the likes of Corona and Modelo, which are fast growing imported beer brands, to Constellation Brands in the U.S. In fact, Corona Extra, Modelo Especial, and Corona Light form three of the top four highest-selling imported beer brands in the country.

In order to appease anti-trust authorities in the U.S., SABMiller has to sell its interests in MillerCoors, and also lose global rights to the Miller brand. In order to potentially appease European regulatory authorities, SABMiller might have to let go of two more of its global brands. This downsizing of SABMiller’s portfolio seems logical, and the only possible way by which the combination between the world’s two largest brewers might be given a green light, but losing these ‘winner’ and globally renowned brands will be discouraging for the new AB InBev-SABMiller partnership. The company will hope that the cost cuts, synergies, and potential growth in Africa and Asia, will be more than enough to offset the loss of these strong brands, that once held together SABMiller’s beer portfolio.

Source: Forbes

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