Fantasizing About Whom Anheuser-Busch InBev Acquires Next

The brewer has more holes to plug following its acquisition of Oriental Brewing.

Jan 23, 2014 at 4:10PM

The Wall Street Journal gave new life earlier this week to the oft-speculated rumor that Anheuser-Busch InBev (NYSE:BUD) might acquire rival SABMiller (NASDAQOTH:SBMRY) in what would rank as perhaps the largest merger ever in the beer industry, surpassing the $52 billion takeover of A-B by InBev itself. Although the industry is undergoing an already intensive wave of consolidation, there are so many hurdles to this getting done that even the Journal admits such talk is routinely dismissed as "fantasy M&A."

Images

Analysts say such a deal is possible, though a straight buyout would never pass muster with U.S. regulators because of the massive market share the combined company would control. A-B itself owns nearly half of the market, while MillerCoors, the SABMiller joint venture with Molson Coors, controls another 30% or so, and the two are responsible for nearly half the earnings the industry generates. Only through a significant bit of divestiture could this idea even be considered.

A-B had to give up its 50% stake in Crown Imports to Constellation Brands to complete the Grupo Modelo takeover, and it's facing the possibility of new antitrust allegations related to that deal. Plaintiffs' attorneys argue Constellation misled the courts over whether it would coordinate with A-B over price hikes, and while it's debatable how successful they'll be in pressing their claims, a deal like a Bud-Miller tie-up would require at least the separation of MillerCoors, possibly back to Molson.

Yet the discussion of such rumors shines a spotlight on the biggest gaps in Anheuser-Busch's business, so it's instructive to at least consider a potential deal to see not only what the brewer needs to do but where it might act absent such an acquisition.

Following A-B's announcement earlier this week that it was acquiring its once and future South Korean brewer, Oriental Brewing, it's clear the giant has its sights set on emerging markets. Asia's $258 billion market is growing at twice the rate of the rest of the world, but at slightly more than 14% of total revenue, it's not a big part of the brewer's business. However, further bolt-on acquisitions, possibly in China, could change that dynamic.

Yet Asia is only one part of a much larger picture, and it informs why takeover speculation at the top echelons of the industry are cropping up again. According to the market analysts at Euromonitor, in the last decade  global brewers generated 80% of their volume growth from Asia and Africa. While Oriental Brewing gives A-B the largest brewer in South Korea, with a 60% share, that market is fairly mature, growing at only about 2% annually for the past few years and not expected to grow much more than 1% per year going forward.

The real growth is expected to be in Africa, and that's where SABMiller would prove most attractive. It already has 38% of the market there, but also owns a 20% stake in No. 2 Castel, a privately held brewer with a 25% piece of the pie. Heineken at 18% is third, followed by Diageo, which actually sells more Guinness in Nigeria than it does in Ireland. Anheuser-Busch hardly has any presence at all on the continent.

Although analysts think A-B acquiring Heineken or Carlsburg, the No. 3 and 4 players in the global brewing market, is even less likely than a Miller tie-up because of their ownership structures, Heineken at least could give A-B the exposure it needs in Africa (Carlsburg also has virtually no exposure in Africa, either).

So even though I believe it is a fantasy to think Anheuser-Busch InBev would make a move on SABMiller, as the regulatory hurdles are just too high to surmount, I can see the brewer making more acquisitions like Oriental Brewing to plug some gaping holes in its operations, ones that need to be filled soon before rivals step in and take the most promising prospects. The M&A trend is not over yet, and A-B is not done leading the consolidation wave.

Another fantastic opportunity
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Diageo and Molson Coors Brewing. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers