What: Shares of Anheuser-Busch InBev (NYSE:BUD) were fizzing higher in October, gaining 15% according to data from S&P Capital IQ as the company agreed to merge with SABMiller (LSE:SAB). As the chart below shows, the stock's move upward was erratic as investors reacted to the steady drumbeat of news from the companies and regulators.
So what: The big news during the month came on October 12 when the two beer giants agreed to the merger, in which AB InBev would pay approximately $106 billion for SABMiller in a deal that gives the new company ownership of one out of every three beers sold in the world and half of the industry's profits. The takeover follows the combination just years ago of Anheuser-Busch and InBev as the alcohol industry continues to consolidate, and is a hallmark of 3G Capital, the Brazilian investment firm that is AB InBev's largest shareholder. Some analysts see the merger as a defense against the rise of craft beer, which has come as once dominant brands like Budwesier have fallen out of favor in the U.S. -- but many of those craft brews are owned by the beer giants. In the last year alone, AB InBev has scooped up 5 craft brewers, including Canada's Mill Street Brewery and California's Golden Road Brewing, and the SAB Miller acquisition should ensure the combined company's continued dominance of the industry.
Now what: The merger still needs full approval from regulators, but it took a big step towards that goal this week as Molson Coors appears to set to buy out the remaining stake in MillerCoors, a joint venture between MolsonCoors and SAB Miller. The divestment is seen as necessary for the deal to pass muster from U.S. regulators.
The companies could shed other brands to win approval in the E.U. and China, and shares are likely to move higher as the merger takes more steps toward completion. With a commanding portfolio of brands, the new company should be a strong capital-generating engine for investors as long as regulators allow it.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.