Wait a second! If Anheuser-Busch InBev's (BUD +0.27%) acquisition of Grupo Modelo brought howls of protest from the Justice Department about a lack of competition that would result even though the latter had just 7% of the beer market, how is it a $100 billion tie-up between A-B and No. 2 brewer SABMiller would pass muster?
Together they would control three-quarters of the U.S. beer market based on volume, yet analysts say that since there's little hope of significant organic growth available to brewers, they're speculating a tie-up of these two would be a winning combination.
While the Wall Street pros admit that SAB's MillerCoors joint venture with Molson Coors (TAP +0.50%) would likely upset regulators a tad since it owns a 25% share of the U.S. market -- meaning it would have to be jettisoned before they would sign off on it -- the rest of the world market has little similar overlap and represents an oyster waiting to be cracked open.
Anheuser-Busch has the markets in North America, Mexico, and Brazil under lock and key; SABMiller would bring smaller Latin American markets and Africa into the mix. Still, color me skeptical. Three decades ago there were nearly 50 major brewers; today there are pretty much just two -- A-B and MillerCoors -- and they control 90% of production. It seems hard to fathom regulators wanting to allow that sort of concentration of power to start spreading elsewhere in the world.
The rise of a beer monopoly such as would occur if this merger went through doesn't bother me in the least. The duopoly that currently exists couldn't hold back the rise of the craft beer market, which has become the only real growth segment of the beer market, so much so that even the big boys of brewing are snatching up craft beer labels or pushing out their own to grasp some of that lightning in a bottle.
Putting the mass beer market into Anheuser-Busch's hands as the merger would do wouldn't alter that in the slightest. Owning half the market hasn't stopped declining volumes in its beers. In its third-quarter earnings report released just this morning, Bud said its own beer volumes fell 1.4% while over the past nine months they're down 2.1%.
Contrast that with Boston Beer's flagship brand Samuel Adams, which itself has suffered a spate of quarters of falling sales, but turned it around and has now put together two straight quarters of rising depletions. Even Craft Brew Alliance, the brewer of Redhook Ale, Widmer Brothers, and Kona Brewing beers, which also relies upon Anheuser-Busch for distribution, saw depletions rise 12% last quarter. The craft beer segment is still drinking the mass brewers under the table.
Anheuser-Busch's buyout of Modelo was not an easy road and ultimately required it bring in Constellation Brands to take over Modelo's Piedras Negras brewery, its 50% stake in Crown Imports, and perpetual rights to Grupo Modelo's brands in the U.S. At the very least the Coors joint venture would have to be calved off, and it's been noted that soda might prove an even bigger hurdle: A-B is the largest bottler of PepsiCo beverages in Latin America and SABMiller is a large Coca-Cola bottler.
Certainly it would be ironic if this union of two big brewers of alcoholic beverages was undone by regular carbonated drinks. Shares of Bud are up less than 1% in midday trading today and are actually lower than the day when the speculation first broke. This isn't the first time analysts have mused over the possibility of joining these two brewers, so it suggests investors are simply thinking, "I'll believe it when I see it."
