Last year, the No. 1 and No. 2 breweries on the planet started moving toward what some might call a monopoly.
In this clip, David Gardner, Sean O'Reilly, and Vincent Shen talk about what might happen when AB InBev (BUD +1.03%) completes its buyout of SABMiller. They discuss who the megacompany might start targeting more aggressively, how regulatory pressure could affect it, and how well the company could do based on the past performance of its components. Also, The Motley Fool's co-founder talks about what makes the beer industry, and AB InBev, in particular, a fantastic long-term investment.
Listen to the full podcast by clicking here. A transcript follows the video.
This podcast was recorded on Jan. 19, 2016.
Sean O'Reilly: So, David, we've had a couple of shows about this situation, and I can't wait to get your thoughts. What do you think of AB InBev's move to buy SABMiller? It's a big company.
David Gardner: It is.
O'Reilly: And you usually don't go for big companies.
Gardner: That's true. The market cap of the company is just short of $200 billion. The reason I like and have recommended the stock wasn't that, Sean; it was just that I look backwards and see 100-plus years of a successful company, and really a few thousand years of commitment by the human race to beer. I look at a company today that has 17 $1 billion beers. 17 different channels for different types of beer at that kind of scale, and I just look for the next thousand years or so, which, I'm sorry to say, not all of us will be living during -- although, we are all living longer, and technology proceeds at pace.
O'Reilly: Fingers crossed.
Gardner: I just think it will be around forever. And I think it's a really successful company. And I don't really have a strong reaction or thought about Miller. Vince, what do you think?
Vincent Shen: Well, the issue there, and what we brought up last time when we talked about when this deal was first announced is, I guess, ultimately, what their position will be in terms of the regulatory environment, and the fact that, as David mentioned, they have so many of these huge brands -- combining that with SABMiller, which commands its own strength in certain markets that AB InBev wants access to.
When you have this massive conglomerate with that much concentration in terms of its market share and its dominance over the industry, what concessions are you going to have to make? What are they going to have to split off? It's going to be really interesting to see what, ultimately, if the deal goes through, that final entity looks like, where their strengths are, what brands they'll be able to hold on to.
O'Reilly: Yeah. The one key takeaway I remember from that show, Vince, was that we concluded that they're basically trading SABMiller's U.S.-based businesses for the growth markets of Africa and South America. Their economies are growing a lot faster, people's incomes are going up. And like David talked about, it's about the next 100 years, not the next five years.
Gardner: Certainly, there's always regulatory risk when you get that large. I always like to think about the companies that we're recommending in all of our services being stand-alones, and in most cases, not expecting them to need to merge, or hoping that a sugar daddy comes along, or there'll be some super-merger that causes this company to take over the world. So this is just a great company on its own. It's one of the lower-risk companies you can buy. In Motley Fool's Supernova, one thing we do is we put a risk-rating number on every one of our stocks, and it's a scale from 0 to 25. Lower is lower risk, to be simple. So 25 would be crazy, insane risk -- really a stock we'd never recommend. Apple is a five. AB InBev is a seven. That's a very low-risk stock.
O'Reilly: Did Apple win because of its huge bank account?
Gardner: That's definitely a factor. Our 25-point scale is basically 25 yes or no questions, and we ask the same question of every single company. And every single no is a plus one for risk. In other words, every number is riskier. So we only had seven numbers for that system. And I'll mention that, maybe, for a few other companies we talk about. But it just reminds me that this is a company that pays a solid, stable dividend, and, if you're a three-to-five-plus-year investor, the chance of you losing money on this investment is very low, in our opinion.
