If the proposed merger between beer giants SABMiller (OTC:SBMRY) and AB InBev (NYSE:BUD) finally goes through, the combined entity is looking to dominate about 30% of the global beer market -- and as you might imagine, a company that big is going to be host to a slew of regulatory pressures and antitrust concerns.
In this segment from the Industry Focus: Consumer Goods podcast, Sean O'Reilly and Vincent Shen give listeners a quick update on how the companies have been making strategic divestitures since the merger's announcement in November to increase the odds of approval.
A full transcript follows the video.
This podcast was recorded on April 19, 2016.
Sean O'Reilly: I wanted to dive into following up on a story we covered a while ago, which was AB InBev's proposed acquisition of SABMiller.
Vincent Shen: Huge deal, over $100 billion.
O'Reilly: You sent this to me this morning, very interesting article in The Wall Street Journal. They accepted a bid, I guess, of $2.9 billion in cash from Japan's Asahi Group for SABMiller's premium beer brands -- and these are the European brands -- Peroni, Grolsch -- I am totally butchering that, if anybody wants to correct me ... I took French in high school. Anyway. Also, British beer Meantime. One, that's a nice chunk of change. Two, and what I wanted to highlight, this was just one of many divestitures these companies are doing in order to get this deal done.
Shen: When the deal was first announced, we were breaking that down. We always caveat some of these bigger M&A deals that they sign that there is going to be some stipulations in there, there's going to be some things they need to do in order to help increase their odds of regulatory approval. In this case, obviously, some of those divestitures, this being one of them, I think they received the offer from Asahi in February or March. And now it's been finalized. So, you mentioned, Japan is eager to expand and get their hands on --
O'Reilly: This is their first big acquisition outside of Japan.
Shen: In some time, yeah. Previously, I think they had a pretty big deal, about $13, $14 billion --
O'Reilly: Oh, that's right, they bought Jim Beam.
Shen: Jim Beam, Maker's Mark. So as you mentioned, this is one of many. What were some of the other divestitures?
O'Reilly: The first thing to go, and this was like a given, totally going to happen, was SABMiller's 48%, I think, interest in MillerCoors LLC, which was their joint distribution center with Molson Coors Brewing (NYSE:TAP).
Shen: Of course.
O'Reilly: Ironically enough, they created that joint venture in order to compete more effectively with Budweiser's distribution. Irony is the spice of life, I guess. But that definitely happened already. In March, the company agreed to sell SABMiller's Chinese beer business to China Resources Beer Holdings -- boy, they really got creative with that name. That was done in order to gain antitrust approval from the government of the People's Republic of China. Even after all these divestitures, and all of this definitely needs to happen in order to close the deal -- the combined entity's going to have 30% global market share of the beer industry on this planet. They're going to have 90% market share -- and I saw this list, they are 190 countries on this planet, they're going to have 90% market share in a couple of dozen Latin American and African countries.
O'Reilly: So these definitely need to happen. And that's really why they're doing it. They want to match up the South American and African beer distribution and markets, because those are center, where you're going to see a lot of growth, and GDP growth, and everything. This is definitely a long game.
Shen: It's interesting, too -- we talk about the deal itself, over $100 billion. Some of these divestitures are not small by any stretch.
O'Reilly: This is a $3 billion deal right here, and it's just a line item!
Shen: You have the Asahi deal, $3 billion, not small by any stretch. And also, the MillerCoors joint venture you mentioned, that was sold to Molson Coors for $12 billion. And, I did not know this until we started doing some of the research originally, learning about CR Snow, that's the No. 1 selling beer by volume in the world. Obviously, driven a lot by its popularity in the Chinese market, huge market. But that deal was, considering how powerful that is, No. 1 selling beer brand by volume, and that deal was only $1.6 billion. So, that was generally seen as a very good deal for China Resources. But, again --
O'Reilly: We should go get some Snow. Have you had it?
Shen: I've never had it. I would like to.
O'Reilly: You really need to, yeah.
Shen: Hopefully we can find it at a store around here.
O'Reilly: For sure. But, bottom line, this is happening. And I do think the deal will eventually go through. Actually, I kind of like it, because they're positioning themselves for another century of growth in all these high-growth markets.