Brewing merger

Belgium based AB InBev and London based SABMiller have reached agreement in a $104.2bn merger deal which will bring some of the world’s most valuable brands under one corporate roof, including Budweiser, Miller Lite, Peroni, Grolsch and Stella Artois. AB InBev increased its cash offer to SABMiller shareholders to £44 per share – some 50% over SAB’s September share price. The combined company would have a turnover in excess of £240bn and, with a global market share of 30.5%, would sell around one in every three beers bought. The merger will be one of the world’s largest, creating a company with over 220,000 employees and operating in more than 100 countries.

Global market shares before the merger

Regulators will now be pouring through the detail of the intended merger to establish the key competition issues emerging. Brewing is a highly vertically integrated industry, in which dominant firms are able to dictate prices to retailers and limit consumer choice in pubs, hotels and other controlled outlets. The merger will make a difficult situation worse for smaller micro-breweries and those selling ‘craft’ beers, who have seen increases in market share in recent years. This makes them easy pickings for the mega breweries who are keen to add craft beers to their portfolio. Even before the proposed merger, the brewing industry has been the subject of close monitoring in terms of its anti-competitive structure and considerable barriers to entry.

While the merger will face close scrutiny in many territories, it is thought that it will be allowed with a likely request to divest brands and selling stakes in other breweries. That the merger is likely to go ahead with modest regulation is because even though global concentration in the industry will increase considerably, the effect in any one territory is  limited. For example, while AB InBev has a market share of nearly 80% in Argentina, it is only 16% in the UK and 6% in Germany. In France, both SABMiller and AB Inbev lag behind Heineken which has a 30% market share. However, some enforced selling is likely, with AB Inbev required to sell SABMiller’s stake in MillerCoors in the US and CR Snow in China (a joint venture between SAB Miller and China Resources Limited), which controls around 25% of the Chinese market.

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