Brewers' mega-deal looks hard to quaff

Competition crack down

Canada's thwarting of BHP Billiton's 39-billion hostile bid for PotashCorp last year was a setback for big companies looking for acquisitions.

Before that bid, five large crossborder mining deals had already been rejected by regulators or governments, according to the Financial Times.

Competition authorities around the world have started to crack down, especially in Europe.

"It's becoming more and more difficult to get regulatory approval for the really big transactions," said Leon von Moltke, head of debt restructuring at RMB.

But Rob Forsyth, head of industrials at Investec Asset Management, said: "With SABMiller and AB InBev there isn't much in-market overlap.

"Beer is all about branding and marketing."

Advantageous

Forsyth said marrying the costcutting culture of AB InBev with SAB's marketing would be advantageous.

In 10 years, rapid consolidation resulted in the top four breweries - AB InBev, SABMiller, Heineken and Carlsberg - accounting for nearly half the world's beer sales.

Brewery deals have totalled $141.9billion in five years, and the opportunities for more consolidation among the big players looks limited, though executives expect acquisitions to continue as global brewers expand.

Organic volume growth is expected to come from developing markets. Emerging markets have grown at 6.8% in five years while developed markets dropped to 3.4%. The biggest growth is in China, Africa and Eastern Europe.

About 80% of SABMiller's sales and profits come from emerging markets.

Beer, beer and more beer

AB InBev is bigger than SABMiller in terms of volumes brewed (348-million hectolitres versus 244-million hectolitres) and market capitalisation (US$87-billion against SABMiller's $54-billion).

A merged group would produce one third of the world's beer, combining brands such as AB InBev's Budweiser and Stella Artois with SABMiller's Castle, Miller Lite and Peroni.

There is surprisingly little overlap between the two, apart from in the US, which would present a problem.

The combined group would have nearly 80% of the market in the US, but SABMiller would have to sell its 58% stake in MillerCoors in the US.

Not anytime soon

Analysts are divided about the possibility of a merger, and no one sees it happening soon.

Four years ago, InBev directors met their SABMiller counterparts but no deal materialised. At the time InBev balked at the prospect of having to pay a premium to the SABMiller share price - which has since doubled.

Traditionally, big deals have been about willing sellers and buyers. But national interest is a growing factor and the government has become protective of SA-founded assets. The Department of Trade and Industry wants the Competition Commission to block Kansai Paint of Japan's hostile takeover of Freeworld Coatings. And various departments have become involved in Walmart's buyout of Massmart.

Source: Business Times