Invesco Canada blog

Insights, commentary and investing expertise

Matt Peden | September 23, 2015

Is there a merger brewing in the beer world?

Last week, Anheuser-Busch InBev announced that it has approached SABMiller regarding a potential takeover. It is unclear whether the two companies have entered into serious discussions at this point, and officially, no offer has been made. There is no certainty that a transaction will occur, as there are a number of considerations involved.

There will be anti-trust hurdles to overcome in several markets, such as the U.S. and China. However, these concerns are not insurmountable, as Molson Coors could purchase SABMiller’s stake in the MillerCoors joint venture in order to satisfy U.S. regulators. In addition, SABMiller could sell its ownership interest in Chinese brewer CR Snow, a joint venture with China Resources Enterprise, in order satisfy regulators in China.

Fortunately, these two major divestments also represent a couple of the least appealing parts of SABMiller’s business. AB InBev already holds the dominant number one position in the U.S. market, earning substantially higher margins than MillerCoors, and SABMiller’s business with China Resources operates predominantly in the low-margin, mainstream segment.

If the acquisition should occur, AB InBev would gain a dominant position in Africa, a high-growth region in which the firm currently has virtually no presence. Further, AB InBev would solidify its dominance in South America, as SABMiller holds leading positions in several smaller markets in the region, including Colombia, Peru and Panama.

In the event of a transaction, AB InBev’s culture and track record provide our investments team with confidence that the acquisition would create significant long-term value for AB InBev shareholders. AB InBev creates value in target companies by implementing a strong culture of meritocracy and materially reducing expenses using techniques such as zero-based budgeting, while reinvesting a portion of savings into marketing and sales to drive growth.

AB InBev is currently a top-five holding in Trimark Europlus Fund and Trimark International Companies Fund/Class.

If the takeover talks continue to develop and you have any questions, please leave them in the comments area below and I will do my best to answer them for you.

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