There’s nothing better than opening a cold, refreshing bottle of beer and sipping it.
Well, that’s not entirely true: Opening two cold, refreshing bottles of beer and mixing them together (a la the Black and Tan — one of my favorite drinks) is measurably better.
Most of the time, beers were meant to be enjoyed on their own. But mixing two beers together has its benefit.
That’s not the only place where we’re seeing beers mixing.
Among beer stocks, there’s a potential mix “brewing” (see what I did there?)
A couple of weeks ago, talks of a big beer merger started up. I wasn’t around to report on it when the story was frothy (see what I did there?) but something was amiss. News outlets were using words like “may” and “could” and “might” and “possibly”… there was plenty of speculation. I dug deep into the fermenting keg of knowledge (which is what I call the internet — just kidding; I don’t call the internet that) to see what people were saying. Here are some of the talking points:
WHO ARE THE PLAYERS?
The players, at first, were:
“Heineken refused a takeover bid from SABMiller… Now Anheuser Busch InBev is thinking of buying SABMiller” [Source: CBS — also it kind of sounds like “Charlie” has been sampling the very beers he’s talking about]
It also seems like SABMiller is trying to strengthen its portfolio to fend off the merger. And since AB InBev has more than twice the marketshare of SABMiller and Heineken, a potential merger between SABMiller and Heineken would have put that new company within closing distance of AB InBev. However, as CBS reports, Heineken is not interested in participating.
This leaves SABMiller at risk of being gobbled up by AB InBev, either through a friendly merger or a takeover.
WHAT WILL THE MERGER LOOK LIKE?
If a merger were to take place…
- AB InBev would pay $122 billion for SABMiller. [Source: CBS]
- A merger between AB InBev and SABMiller would result in a giant beer company with over 300 brands and 30% global market. [Source: CBS]
- This would result in a company with a market cap in excess of $200 billion. [Source: CBS]
- With the sheer size of these companies, this will not only keep AB InBev as the largest beer company in the world, it will become almost impossible for any other beer company to catch up, even if other smaller companies consolidate. In fact, this is being called “the end-game to a decade-plus period of industry consolidation” [Source: New York Times]
WHY ARE THEY INVOLVED?
- This seems like it has the potential for a lot of overlap but the benefit here, as CBS points out, is that “the geographic footprint of these two companies is very different.” AB InBev dominates in the developed markets while SABMiller dominates in the emerging markets. Since the growth in developing companies is slowing, AB InBev is looking beyond its borders to other markets. [Source: CBS]
- This isn’t just a story of AB InBev looking to become bigger. Both companies, AB InBev and SABMiller want to grow and increase profitability, and this provides exposure to new markets for each company (to increase growth) as well as some significant consolidation opportunities (to reduce costs). [Source: New York Times]
WHAT ELSE IS AT PLAY HERE?
Well, certainly there are potential antitrust implications.
- This isn’t the first time we’ve seen a big beer merger. In January 2013, the Department of Justice stepped into the merger of Anheuser-Busch InBev (BUD) with Grupo Modelo who brew Corona. At the time, AB InBev owned a non-controlling 50% stake in the company and wanted the whole thing like
greedy, capitalist bastards opportunists. [Source: New York Times and USA Today]
- After the DOJ intervention, the merger was completed (AB InBev now owns Grupo Modelo) but the right to brew Grupo Modelo products in Mexico and sell them in the US is owned by Constellation Brands (STZ). Yeah, it’s complicated. Seems like of like adopting a child but then having someone else raise that child. [Source: Wikipedia/Constellation Brands]
- If the SABMiller deal doesn’t happen, this doesn’t kill the possibility of a merger completely. AB InBev may approach Heineken. Even though they’ve said they’re not interested, a sweet offer from a different company could change the story. Smaller companies might merge with AB InBev, too, if the market exposure is good. Or, a potential merger between a beer company and a spirits company like Diageo (DEO) could be an alternative. [Source: The Economist and New York Times]
WHEN WILL IT HAPPEN?
- Well here’s the kicker: Maybe they weren’t doing a deal after all. Since the frenzy of activity around September 14th and 15th, news reports have been silent on the issue. But Reuters pointed out that company executives have sold off some of their shares, suggesting that the deal was never happening in the first place (the implication being that they wouldn’t sell shares if those shares were going to go up after a merger. [Source: Reuters]
- But just because it may not happen now doesn’t mean it won’t happen. Actually, this entire event — the media frenzy on September 14th and 15th and the post-frenzy revelation that it might have been wrong is instructive for investors. It tested the waters and drew the battle lines clearly (AB InBev is big enough to make a splash; SABMiller fears a takeover; Heineken doesn’t want to be taken over), it exposed other potential opportunities (like a merger between AB InBev and a spirits company), and it forced the exploration of the any market opportunities and antitrust challenges that could be present in the deal. The result? Sure, there might not be a deal today or tomorrow or in 2014. But just wait. InBev is big and wants to get bigger. SABMiller wants to grow. So do many other companies that could be a party to some kind of merger. The challenges have been revealed as not being insurmountable while the opportunities seem to be compelling.
A beer company merger is a huge deal and investors have seen just some ripples in the water of what could happen when a deal is finally put together. And I think it’s inevitable.