Bud May Drink In a Partner

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While Hank the Clydesdale eventually got the chance to join the Budweiser team in yesterday's popular Super Bowl XLII ad, it's still not certain that Anheuser-Busch (NYSE: BUD) will make the team of the world's biggest brewer, InBev. Nor whether it should even want to.

Rumors sprang up last week that the maker of the King of Beers and the brewer of Stella Artois and Bass were in negotiations to merge operations. Such a distillation would create a megabrewer that would be able to fend off inroads from the world's No. 2 brewer, SABMiller. InBev produces 8.1 billion gallons a year which, when combined with the 5.6 billion made by AB, would make a brewer nearly twice the size of Miller.

Yet it doesn't make much sense for Anheuser to make such a move, at least not yet. While Bud's earnings report showed that international volume for the year grew 5.8% -- a bright spot in a year that saw U.S. beer volume growing just 2% -- the brewer already does business with InBev, importing some 20 European brands.

The merger would give it a large European presence that it currently doesn't have, but Europe's been feeling the pinch of higher commodity costs as well. AB was seeing growth in China, Mexico, and Canada; the U.K. experienced lower volume. That's another reason a tie-up between the two is unlikely any time soon. AB owns half of Grupo Modelo, the maker of Corona, and may have a chance to buy more in the future. Such beers, along with craft brews, have been proving more popular than Anheuser-Busch's domestic beers.

Commodity costs like grains, energy, and metals have all been raising Anheuser-Busch's expenses. Even craft brewers like Boston Beer (NYSE: SAM) have come under pressure from rising costs, particularly for hops. Realizing economies of scale is one reason in favor of a merger, and was part of the explanation of the recent announcement that rivals Miller and Molson Coors (NYSE: TAP) decided to join forces. Their combined 30% market share will pose a significant threat to Bud's dominance.

While there's a lot to be said for an InBev-Anheuser Busch merger, there's at least as much to argue against it. Hank was undoubtedly saved from the glue factory through perseverance (and help from a plucky Dalmation). Anheuser-Busch, without InBev, should be just as able to pull the cart to higher profits.

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