The rocky road ahead for Anheuser-Busch InBev and SABMiller - analysis

The road ahead is not simple for AB InBev and SABMiller

The biggest deal in the history of the drinks industry has been given the green light, as Anheuser-Busch InBev lines up the US$107.3bn takeover of SABMiller. But, the road ahead looks rocky, with competition issues, market tussles and potentially more divestment in the coming months.


AB InBev’s CEO, Carlos Brito, was giving nothing away this morning on what will happen in China. SAB has a joint-venture with China Resources Enterprise called CR Snow, owner of the world’s biggest beer brand of the same name. During InBev’s purchase of Anheuser Busch in 2008, A-B InBev was banned by Chinese anti-trust body MOFCOM from ever owning any stake in CR Snow (or in domestically-owned Beijing Yanjing). A divestment of some kind, then, is definitely on the cards.

Societe Generale analyst Laurence Whyatt believes the delay in announcing the future for A-B InBev and/or SABMiller’s holdings in the country is more likely to be due to the lack of an acquirer. “It makes sense to reach out to a few buyers and see if they can get a bit of competitive tension, and therefore a higher price,” Whyatt told. “Whereas, in the US, there was only one obvious buyer so there was no point running a process.”


Due to the sheer size of the transaction, Whyatt believes the brewer will need to file with every anti-trust body. “Even if A-B InBev has no presence in a geography and SABMiller does,” he says, “they will still file. Authorities will want to run the numbers.” Between now and close, expected during the second half of next year, we can expect a lot of news stories on each legislature’s conclusions.

The Netherlands

As well as China and the US, Whyatt believes there could be anti-trust issues in the Netherlands, which may lead to the sale of SABMiller’s Grolsch brand. "SABMiller owns Grolsch and A-B InBev has [beer brand] Hertog Jan. It also imports many of its Belgian brands, such as Jupiler. Hertog Jan is quite small, so probably won’t appease the regulators but they could potentially sell Grolsch. Their combined market presence, we think, in the Netherlands is 26.9%, using Euromonitor data. Generally, the EU doesn't let you own more than 25%.”

Synergies, job losses and cost savings

Along with the deal, the company announced that it expects synergies of "at least" $1.4bn per year within four years of completion. Nomura’s Edward Mundy takes a closer look at the break down. He says key components include:

Procurement and engineering savings (20%)
Brewery and distribution efficiency gains (25%)
Best practice sharing (20%)
Corporate head office and overlapping regional headquarters (35%)

Again, Brito didn’t give too much away when it came to discussing the savings aspect, only noting: “When any companies get together, there will be duplication at some level, mostly at headquarters level and regional level.” This is borne out by the 35% figure, above.


When the deal was first proposed, Brito described Africa as playing a “vital role in the future of the combined company”. He said: “That’s a continent with 1bn consumers and SABMiller has a very strong history and success in this region.”

Soc Gen’s Whyatt adds: “The key reason for this deal was Africa, where there is effectively a duopoly between SABMiller and Castel. They've kind of split the countries up between them and they have an agreement not to compete in each others markets. The big thing, is if A-B InBev can inherit this deal with Castel. SABMiller has a right of first refusal to buy the Castel business. If that can be transferred over, that would be good for A-B InBev.”

If not, Whyatt believes there are two options: either A-B InBev will look to keep the existing arrangement as is, or it will go up against Castel by entering the latter’s markets at a lower price. "Obviously, A-B InBev can compete on price for a lot longer than Castel,” says Whyatt. “That's a potential outcome".

The presence of the new company by region

(According to Euromonitor's senior alcoholic drinks analyst Jeremy Cunnington)

Number three in Asia-Pacific, with 12% of the region’s 71bn litre annual volumes*; five percentage points less than the region’s market leader, China Resources Enterprise, and one percentage point behind Tsingtao
Number one player in Australasia, with 40% of the region’s 2bn litre volumes; seven percentage points ahead of Kirin
Number two in Eastern Europe, with 23% of the region’s 23bn litre volumes; one percentage point less than Carlsberg
Top in Latin America, with 61% of the region’s 32bn litre volumes; 48 percentage points ahead of its nearest rival Heineken
Top in the Middle East & Africa, with 41% of the region’s 13bn litre volumes, 22 percentage points ahead of second-placed Heineken
Top in North America, with 45% of the region’s 27bn litre volumes; 17 percentage points ahead of the soon-to-be-enlarged Molson Coors
Number two brewer in Western Europe, with 13% of the region’s 28bn litre market; three percentage points behind leader Heineken

*assumption being that the enlarged brewer will have to divest SABMiller’s stake in China Resources