Beer market getting tipsy

South Africa's proudest multi national export, beer-maker SABMiller, is in the middle of a global fight for market share.

In recent weeks, the local brewer has been caught in the middle of a tussle for global domination led by predatory InBev.

These are the players in one of the biggest corporate games being played right now:

InBev has been described as a “deal junkie”. It is armed with a reputation of ruthless efficiency in cutting costs.

It is ambitious, long term in its thinking and clearly intent on entrenching its dominance in the global beer market.

InBev is particularly strong in Europe and emerging markets such as South America.

The company makes Stella Artois, Beck's, Skol and Hoegaarden. It also produces smaller volume and speciality beers, non-alcoholic brews, malt liquors (King Cobra and Hurricane), and flavoured malt beverages. It has a portfolio of about 200 local brands.

US giant Anheuser-Busch, owner of Budweiser, Busch (originally known as Busch Bavarian Beer) and Michelob.

Brands held by SABMiller include premium international beers such as Pilsner Urquell, Peroni Nastro Azzurro and Miller Genuine Draft. SAB has 98% of the SA market with Castle, Carling Black Label and Hansa.

SABMiller is touted as plan B should InBev's pursuit of Anheuser-Busch not bear fruit.

A union between Anheuser Busch and InBev would be the largest deal ever in the beverages industry.

Anheuser-Busch is based in St Louis, Missouri. It is the largest beer company in the US, holding more than 50% of the domestic market.

However, some commentators say the company has not adapted quickly enough to keep pace with what's happening globally.

An unnamed analyst said that while InBev is essentially run by private equity bankers, SABMiller is run by “real brewers”.

Julian Wentzel, head of research at Macquarie First South, said there would be a better fit between InBev and SABMiller, than with Anheuser Busch.

Wentzel rates SABMiller chief executive Graham Mackay as the world's best brew master.

“See what he did with that asset base and how he's grown and created a global business. He's one of the core drivers of consolidation today.”

Wentzel said InBev would need to get the management of SABMiller on its side.

“For Graham it's not about price. He has a vision, a passion and a dream.”

Wentzel said there was potentially “enormous value” to be realised in a deal between InBev and SABMiller.

“If they put their brands together they would have a wonderful global footprint. There is a compelling logic in having a global business to develop a global footprint in brands.”

The beer industry is going through a wave of consolidation. It needs core local brands as well as international premium brands to extract the cream. Without that, companies are not able to defend the market and cannot drive massive economies of scale.

At the same time, the New York Times said US beer brewers have struggled recently as consumers have lost interest in the mainstream mass-market brands in favour of wine, spirits and craft beers and imports.

Although Anheuser-Busch management is not going to go down without a fight, raising close to $50-billion is near impossible given the state of the credit market, said an analyst who declined to be named.

Any deal would require Anheuser-Busch to take on InBev paper, or for InBev to raise money through a rights issue or a new placing on the Belgian stock exchange and use the cash to help pay for this transaction.

By contrast, SABMiller shareholders could be more willing to take European paper. Both of SABMiller's large shareholder blocs have in the past taken SAB paper. SABMiller has strong growth prospects because of the exposure to emerging markets, the only arena with current growth potential.

Says an analyst, “Putting together InBev and SABMiller would create an absolutely magnificent, unparalleled beer asset. It would be about the fifth biggest consumer staples company in the world”.

Source: Sunday Times

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