Anheuser-Busch InBev, or simply AB InBev, is the biggest brewery in the world with a net profit of $9,2 billion in 2014 and a turnover of $47,1 billion. Beer production is obviously their core business but you could also say that their second core business is mergers & acquisitions.
InBev was founded in 2004 due to a merger between the Belgian brewery Interbrew and the Brazilian AmBev. Before this, the Belgian brewery Interbrew had already acquired a lot of smaller breweries in Belgium. The same thing goes for AmBev. This merger caused the profit to rise a lot due to changes in the strategy, such as more focus on mass production of beer instead of making authentic special beers. However, this changing strategy turned out to be not so beneficial for the cafeteria owners. This led to some criticisms of the new strategy of InBev.
Anheuser-Busch was founded in 1879 when Eberhard Anheuser changed the original name of the brewery called Bavarian Brewery Company that he owned. He was cooperating with Adolphus Busch, his son-in-law. Anheuser-Busch was the founder of the famous brand Budweiser. It was the biggest U.S. brewery till InBev acquired it.
SABMiller was founded in 1895 under the name South African Breweries (SAB). In 2002 Philip Morris – a company that mostly produces cigarettes – sold their beer activities of Miller Brewing Company to SAB. This takeover was worth around $5,6 billion. SABMiller also played a big part in the Coca-Cola Company, as both companies combined their production and distribution activities, such as product bottling, in the southeast of Africa. It had a net profit of $3,3 billion and a turnover of $22,1 billion.
On the 12th of June 2008, InBev proposed its takeover of Anheuser-Busch for an amount of $46 billion ($65 per share) but the board of Anheuser-Busch, classifying it as financially inadequate, unanimously declined this. After InBev raised the bid to $52 billion on the 13th of July 2008, the board of Anheuser-Busch and their shareholders accepted it. That merger can be labeled as a horizontal merger because it took place within the same industry. It can also be labeled as a hostile takeover due to the fact that InBev was planning to ask the shareholders of Anheuser-Busch to fire the board.
On the 29th of June 2012, AB InBev announced to acquire the biggest Mexican brewery Grupo Modelo. Before this acquisition, it already had 50% of the shares of Grupo Modelo due to takeover of Anheuser-Busch. This takeover was worth $14,2 billion.
On the 13th of October 2015, AB InBev and SABMiller agreed on merger between the two breweries by a takeover of £44 per share, which incorporates a premium of approximately 50%. An acquiring company is always paying a premium because the company not just buys the company but also their goodwill. The first two bids of AB InBev were rejected, which accounted for, respectively, £42,15 per share and £43,50 per share. The market share of the two breweries combined is now almost 30%. The biggest brewery in the world became reality. They have not yet announced what the new possible name of the merged firm will be.
It is maybe quite confusing due to all the mergers and acquisitions of all the breweries in the world so let’s make a couple things clear about the companies and mergers and acquisition.
The four biggest breweries in the world are AB InBev, SABMiller, Heineken and Carlsberg. The first two are merging and, as a result, what is now three of the biggest breweries in the world hold approximately the half of the market. Heineken is prone to be the most famous brewery because their beer has the same name. It is the Dutch pride and the brand is linked very closely to the Netherlands, for instance with the Dutch National Football Team or the Dutch Olympic Team.
The reason why firms are willing to take over another firm is to gain more value. Any value created by a takeover is defined as synergies such as economies of scale, expertise, tax savings and monopoly gains. It is also likely that the acquirer will buy the target firm above the current market price, which is called the acquisition premium. The acquirer is willing to take over the target firm if the value of the merged firm subtracted with the price is more than the value of the acquirer before the merger.
This historical merger in the beer market will lead to opportunities for Heineken, which is now the second biggest brewery.
The U.S. competition regulators are likely to sign off the merger due to violating rules about competition and monopoly. Therefore, some parts of SABMiller will have to be sold to meet the regulations. Heineken can benefit from this by acquiring them. These exist especially in the U.S. market. As mentioned before, AB InBev focuses more on mass production so there is market share on the premium beer market that can be caught by Heineken. Heineken has rejected a bid of SABMiller last year, due to the fact that Heineken wants to remain independent. Consumers are therefore seeing Heineken as a more premium brand compared to AB InBev and SABMiller.
Investors also think there are opportunities for Heineken because the stock price of Heineken rised from €75,29 on the 13th of October 2015 to €83,33 on the 28th of October 2015.
Concluding, you can say that the merger between AB InBev and SABMiller can be a good opportunity for Heineken if they take over the parts that must be released from SABMiller due to competition regulations. Heineken is capable of increasing their market share in the United States by the takeover(s). It is important that they increase their market share in the U.S. because they are not playing a big role as a brewery like in Europe. If Heineken is capable to benefit from this opportunity, their share price will rise even more and eventually increase their net profits.
I think that Heineken absolutely must take advantage of this because their beers are delicious and they can make a lot of people happy by selling their beers in the U.S.
At the time of writing this article, the merger is not finished yet due to regulations and other procedures that are important in a merger. I would recommend to follow the business journals to see the results of this massive merger in the beer market.