Ab InBev: SABMiller Combination Could Make U.S. Business Weaker

by Trefis Team
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Anheuser-Busch InBev
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Anheuser-Busch InBev (NYSE:BUD) has got approval from the U.S. Justice Department to go ahead with the acquisition of its chief competitor SABMiller, for a massive ~$107 billion. But in an effort to increase its presence in Africa and other emerging markets, will the combination negatively impact AB InBev’s U.S. business?

The third largest acquisition in history beckons regulatory approval, and AB InBev has secured that in Australia, Europe, South Africa, and now the U.S. The coming together of two of the biggest names in beer will create a behemoth that will account for ~28% of the global beer market. [1] The deal is mostly about the growth opportunities in new markets for AB InBev, as SABMiller has a strong foothold in Africa, where AB InBev has little to no presence.

Bud Q&A 20-1

Growth is already strapped in Europe and North America due to already high penetration levels and an overall slowdown in beer consumption in these regions. In addition, AB InBev has more than 40% market share in the U.S., and a considerable share in Europe. Thus, the brewer has looked to dispose of SABMiller assets in these developed markets to appease regulators and ensure the closing of this deal by the second half of 2016. Part of the process to appease antitrust authorities is the sale of certain SABMiller’s European premium brands, including Peroni, and Grolsch, and related businesses to Asahi for ~$2.9 billion, and sale of SABMiller’s Pilsner Urquell and other beer brands in Central and Eastern Europe, worth ~$5 billion.

In the U.S., SABMiller is selling its 50% voting interest and 58% economic interest in MillerCoors 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 country (MillerCoors), including Peroni and Pilsner Urquell. In conclusion, AB InBev’s market share in the country will not be affected by the inclusion of the SABMiller business. In fact, its U.S. volume sales, which are already declining, could decline at a faster rate now, following the agreement with the U.S. DoJ.

Under the terms of the agreement, AB InBev cannot acquire another brewer, not even a craft brewer, without prior approval of the DoJ. Now, AB InBev has looked to acquire thriving craft brewers, a segment which is growing at a fast pace in the country’s beer market. Craft beer share rose to 12.2% in 2015 from only 2.6% in 1998, reflecting the growing popularity of local and regional breweries. In the last two years, Anheuser has acquired Golden Road, Four Peaks, Oregon’s 10 Barrel Brewing, and the Seattle-based Elysian Brewing Company, the fastest-growing brewer in Washington, to add to its craft beer portfolio already comprising the likes of Blue Point and Goose Island brands. The craft beer segment is seen as a growth opportunity for AB InBev, whose brands such as Bud Light and Budweiser have seen declining sales in the last few years due to the slowdown in demand for domestic beers. The agreement with the DoJ, and its stringent conditions, will make it difficult for AB InBev to keep adding craft brewers to its portfolio, and thus, could take away the growth opportunity in this segment for the company.

In addition, AB InBev cannot buy any distributors without prior approval of the DoJ, and cannot incentivize independent distributors and encourage them to not sell imports or craft beers made by competitors. ((Did Anheuser-Busch InBev Just Make Its Last Acquisition?, fool.com)) Independent distributors that sell AB InBev’s beer will have the freedom to sell and promote a variety of beers of other brands too, thus preserving the interest of smaller brewers, by protecting their access to major distribution networks. This could, again, act against AB InBev.

North America forms just under 30% of AB InBev’s value, as per our estimate, and we estimate the brewer’s volumes in the region to decline at ~0.8% between 2015-2020. Although the combination with SABMiller will give AB InBev footholds in Africa and other emerging markets, the company’s sales in the U.S. could decline at a faster rate now.

Have more questions on Anheuser-Busch InBev? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Anheuser-Busch InBev

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Notes:
  1. DOJ approves Anheuser-Busch InBev’s $107 billion deal for SABMiller, usatoday.com []
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