Beer Merger Could Brew Up Behemoth

Sept. 17, 2015
Rumored for months, Anheuser-Busch InBev’s potential takeover of SABMiller would join the world’s two largest beer companies, creating a $275-billion brewing behemoth.

Budweiser and Miller could merge if Anheuser-Busch InBev proposes a takeover. Rumored for months, Anheuser-Busch InBev’s potential takeover of SABMiller would join the world’s two largest beer companies and create a company with a market capitalization of a reported $275-billion and be the largest brewer in the world. Together, AB InBev and SABMiller represent about 70 percent of the beer market in the U.S.

AB InBev’s unsolicited pitch was confirmed publicly on Sept. 16 by both companies. Under U.K. takeover rules, AB InBev has until Oct. 14 to make an offer. Afterwards, the complex deal could take a year or more to close.

The move could also spell the end of MillerCoors’ stay in Chicago. Chicago won the headquarters because it was considered a neutral site, situated between Molson Coors’ Denver-based U.S. operations and Miller’s in Milwaukee.

AB InBev produces beers like Budweiser, Corona, Stella Artois and Beck's. SABMiller’s portfolio includes beers with domestic and global appeal, like Miller Genuine Draft, Coors Light, Peroni Nastro Azzurro and Grolsch.

For such a deal to clear U.S. antitrust law, AB InBev would likely need to divest Chicago-based MillerCoors, a joint venture between SABMiller and Molson Coors established in 2008, says Philip Gorham, a Morningstar senior equity analyst, in a report by the Chicago Tribune.

“The bad news for Chicagoans is the only sort of margin upside for Molson Coors would be to take out the back-office location in Chicago … and relocate them to Denver or Canada,” where Molson Coors has its headquarters, Gorham observes. Together, AB InBev and SABMiller represent about 70 percent of the beer market in the U.S., he says. “This would build a monster of a firm,” he adds.

The obvious suitor in such a deal would be Molson Coors, which already owns 42 percent of MillerCoors. If AB InBev acquires SABMiller, the results would create a company valued at around $275 billion with annual sales of $73.3 billion, more than three times the closest rival, which is Heineken.

AB InBev was formed in 2008 when Brazilian-Belgian brewer InBev bought U.S. icon Anheuser Busch Cos. The firm operates in 25 countries and makes more than 200 beers. While a specific offer has yet to be made, stock in SABMiller jettisoned 22 percent. "AB InBev's intention is to work with SABMiller's Board toward a recommended transaction," the Leuven, Belgium-based company says in a statement. "There can be no certainty that this approach will result in an offer or agreement, or as to the terms of any such agreement."

The beer industry has seen years of consolidation, as brewers seek to sustain growth while changing tastes are prompting consumers to embrace craft beers and wine. Buying SABMiller would strengthen AB InBev's position in fast-growing economies in Africa and Asia. Headquartered in London, SABMiller has about 69,000 employees in more than 80 countries. The company said it "would review and respond as appropriate to any proposal that might be made."

In the year ended March 31, SABMiller generated group net producer revenue of $26.2 billion. In contrast, AB InBev had revenues of $47.06 billion.

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