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22-10-2015, 17:15
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For the last month AB InBev, the largest brewing operation in the world has been trying to woo the owners of SABMiller, its nearest competitor and after a number of offers the board of SABMiller has accepted an offer of £44 per share and will recommend the takeover to its shareholders. This merger will create a company worth a combined £150 billion and brewing capacity of 542 million hectolitres (or 95,378,666,062 pints). Both companies were established by a series of mergers and takeovers, and this is the latest and ultimate of these. The new company will control 30% of world beer production facilities and over 50% of world profit in the brewing sector globally as well as owning or producing over 350 brands.
The nearest rivals to this combined company are Heineken and the Carlsberg Group and they only account for 8.7% and 5.5% of the world market respectively, less than half of the proposed post merger AB InBev SABMiller. The size of the new company and its dominating position in the market means it will have to sell off some operations to satisfy the UK and US regulatory bodies who ensure there are no monopolies formed as a result of the transaction.
In the USA the combined company will have a 70% market share, so there will be major disposal of distribution rights and brands to satisfy the authorities. They also have a significant presence in China and could be asked to exit from some of SABMiller’s joint ventures there to keep their regulator happy.
There is precedent for this, when AB InBev took over the Mexican brewer Grupo Modelo in 2013, it was forced to sell the US rights to a number of major brands owned by Modelo to a rival operator. So as you can see there are a number of major hurdles to clear before the takeover completes. If the takeover fails it will cost AB InBev a £3 billion breakup fee to be paid to SABMiller, which sounds big, but is a drop in the ocean for the market leader. The big target for AB InBev is access to the emerging African beer market in which they have virtually no share and SABMiller are the dominant player, having started as South African Breweries (hence the SAB) and now having operations in 31 countries on that continent.
When you look at the core brands of each company you spot large areas of overlap. The top brands for AB InBev are Budweiser, Corona, Stella Artois, Becks, Hoegaarden and Leffe. For SABMiller it is Fosters, Pilsner Urquell, Peroni, Miller Genuine Draft and Grolsh. There are a number of brands there which would be virtually interchangeable on your local bar without too much resistance from the customer. The overlap is also in brewing facilities across the USA, Latin America, Europe and Asia. AB InBev employee 150,000 people whilst SABMiller have 70,000. How many mega breweries do you need in any geographical area when the beer market in many countries is shrinking due to reduced consumption or people moving to so called “craft brands”. If the trend continues, there will be a cull of facilities in the medium term and with it the loss of a significant amount of jobs, as well as the expect cutting of head office costs after operation have been merged in the various economic zones across the globe.
The inevitable future for a number of brands from either portfolio is that the brewing will be moved to one of these mega brewing plants and the local brewery is shut down or the brand is shelved with the rights to the name kept within the new company. On a smaller scale you can compare this to when the bix six (Whitbread, Scottish and Newcastle, Bass Charrington, Allied Breweries, Courage Imperial and Watneys) were buying out every local brewery they could in the 1970’s and 1980’s. Hundreds of breweries were closed (including Webster’s in Halifax) and the brands mothballed to be replaced by the big company brand of choice in the pubs or brewing moved to a larger regional plant. Not even a big name like Tetleys was safe from this in the end, but managed to hang on until 2011 when the big site on the outskirts of Leeds city centre was closed and turned into a cultural centre and (mainly) car parking for commuters, a fate suffered by by many of the Carlsberg brands as it moved its brewing to the massive Northampton 6.8m hectolitre production plant.
You see the same actions at different scales of the brewing market, consolidation generally is not good for the choice of beer on the market or at your local pub and unlike many countries the UK has a plethora of small to medium brewers, this keeps out market healthy and there brewers on their toes. Let be thankful for that.

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