After weeks of ongoing negotiation, Anheuser-Busch InBev (AB InBev) announced last week that it completed an agreement to acquire its closest rival, SABMiller PLC, for nearly US$106 billion (subject to regulatory approvals). We view the acquisition as a positive for the company. Here’s why.
The two largest brewers in the world are merging, creating a brewery with an estimated global market share of 30%. The newly created company will be nearly three times the size of its nearest competitor, Heineken N.V. The scale benefit created by this acquisition is a significant competitive advantage because it will reduce procurement and distribution costs. AB InBev has indicated it expects to achieve about US$1.4 billion in annual cost savings by the fourth year following the completion of the deal.
The new entity will be able to leverage each company’s brands in new regions. For example, SABMiller has a strong presence in many fast-growing emerging markets, particularly in Africa, where it has first-mover advantage and generates nearly 30% of the company’s profits. The company also has a strong presence in Colombia and Peru. AB InBev will be able to leverage SABMiller’s distribution network in these key markets to sell its premium brands including Budweiser, Stella Artois and Corona – all three of which currently have low penetration in the region.
The regulatory approval process will take time, possibly a year or more, due to potential obstacles in the U.S., China, U.K. and South Africa. In addition, we believe AB InBev may have to make further concessions (i.e., asset sales) prior to regulatory approval. As I mentioned in a previous blog post, the agreement includes the sale of SABMiller’s 59% stake in MillerCoors to Molson Coors, which will make Molson Coors the second-largest brewer in the U.S. behind AB InBev, in order to satisfy U.S. regulators.
We are long-term investors in AB InBev, and have confidence in the management team’s culture and track record around strategic acquisitions. The company is a top-10 holding in a number of Trimark funds. The chart below shows weightings for both AB InBev and SAB Miller in the funds in our global equity suite (as at October 30, 2015).
Source: Invesco Canada, as at October 30, 2015.
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Note: The companies listed above are for illustrative purposes only and are not intended as specific investment advice.