Anheuser-Busch InBev is an acquisition machine and nobody should be surprised that SABMiller is in its sights. A bid has been rumoured for years and the timing carries a whiff of opportunism – before Wednesday, SAB’s shares had slipped 20% from their springtime high, hit by general worries about growth in emerging markets. If, like the Brazilian billionaires behind AB InBev, you keep your eyes on five- and 10-year horizons, that’s an opening.
Yet there is an obvious problem with this takeover approach. The market for bland lager (a description that applies to the bulk of AB InBev’s output and a fair slug of SAB’s) has already been consolidated to the point where competition regulators around the world will be on red alert.
AB InBev is the world’s largest brewer – its convoluted name reflects how many businesses have been thrown in the barrel – and SAB is the second biggest. Together, the duo would have almost a third of the global beer market, towering over the next biggest player, Heineken, with about 10%.
Regulators are bound to force disposals. In the US, SAB’s 58% stake in Miller-Coors would have to go since Miller and AB InBev’s Budweiser would not be allowed to co-habit. In China, SAB’s joint venture is the top player and AB InBev comes in third: local regulators wouldn’t permit that combination. And something would have to give in both companies’ sideline of bottling fizzy drinks, since SAB works with Coca-Cola and AB InBev with Pepsico.
AB Inbev’s calculation, one assumes, is that, even after a spin in the regulatory mixer, enough prime assets will remain. SAB brings the old South African Breweries, a big player in Africa, which is relatively unexplored territory for AN Inbev. Then there a few local monopolies, such as in Colombia, where SAB has about 99% of the market.
Best of all from AB Inbev’s point of view, it has to win the backing of only two SAB shareholders to get this deal close to the finishing line. Altria, spun out of the old Philip Morris, has 26%, and the Colombian Santo Domingo family, have 14%.
Even so, SAB hardly needs a rescuer. Graham Mackay, the chief executive who led SAB’s expansion into global brewer, died two years ago but he built a robust company. Pre-tax profits were flat last year at $4.83bn (£3.14bn) but cash flow remains strong and the dividend was raised 8%. Altria and the Santo Domingos could demand a takeover premium that would test even AB Inbev’s deal-making appetite.
SAB’s shares are up about 600p, or 20%, on Wednesday, at a shade over £36. It might require another 25% on top – meaning an offer of at least £45 a share – to force SAB’s board to the negotiating table. To get that far, AB Inbev would have to spy huge scope for cutting costs. This is tricky given that nobody would describe SAB, with a top-line profit margin of 24%, as flabby.
Don’t doubt AB Inbev’s willingness to consume every big brewer in the world, given half a chance and a large helping of cheap debt. But, from the point of the poor old drinker, this takeover approach feels depressingly stale already – another round of consolidation that hasn’t noticeably made everyday beer cheaper.
