An Expert Look At Budweiser's Potential Bid For Miller & Coors
As you may have heard, Anheuser-Busch/InBev and SABMiller, the world's two biggest beer conglomerates, are in talks to merge in a potential sale, which would consolidate as much as three-quarters of the U.S. beer market under a single corporate banner with a value around $275 billion.
Oh, you hadn't heard? OK, well... yeah, that's happening.
If that sounds like a big deal, that's because it is a big deal. Though this colossal brew union -- which would unite longtime rival brands like Budweiser, Coors Light, and Miller Light in one global stable -- is far from consummated, I called Paul Gatza, director of the Brewers Association and all-around beer industry expert, to ask him what an acquisition of this magnitude would mean if it happened.
This is more than an unfounded rumor
There are constant talks of acquisition in the beer industry, and ABI has speculated about a purchase of this size before. Sometimes they happen; often, they don't.
But this time is different. "This seems real," Gatza said. "Within the industry, people are treating it like it's happening."
The additional certitude, he said, stems from a financial law in the UK that requires corporations to disclose prospective mergers after a certain point. Once ABI approached SABMiller (which is publicly traded on the London stock exchange), the latter company was obligated to tell regulators. Even if the sale doesn't wind up happening, the companies have definitely talked.
The two companies control almost 75% of the US beer market...
Anheuser-Busch/InBev comprises a staggering array of brands, but its biggest are Bud Light and Budweiser, the first- and third-best-selling beers in the country respectively, according to a 2014 study from IRI, a Chicago market-research firm. The dominance of the company's flagship brews contributes to a whopping 45% share of the US market.
The same study shows Coors Light & Miller Lite sitting in second and fourth places. Both are part of MillerCoors (28% share of the US market), a partnership that's joint-owned by Molson Coors and SABMiller (which holds the majority stake). A sale like this could put as much as 73% of America's beer in one mega-company's hands. Of course, this would have to be approved by US anti-trust regulators, which would appear unlikely. But still: this is a LOT of the US beer market we're talking about.
...30% of the global beer market...
Beyond Uncle Sam's jurisdiction, though, the situation is different. The two companies control less of the world's beer than they do of the United States' beer -- around 30%, according to the Wall Street Journal -- but the international business is less stringently regulated. "The idea of monopolies is of strong interest in the US, but it’s of relatively small interest pretty much every else," said Gatza.
That doesn't necessarily spell disaster for international drinkers, he noted, pointing out that in many countries, ABI and SABMiller don't compete with each other as heavily as they do in the US. "One or the other is usually bigger" in a given region, where they face heavier competition from other top companies like Carlsberg, Heineken, and Constellation. An exception: China, the other major market where regulators may force ABI to divest in the event of a merger.
...And $70 billion in global revenue (over 3x the next biggest beer company)
Last year, SABMiller posted a revenue of $22.3 billion. ABI claimed $47.06 billion. The four flagship beers alone (Bud Light, Coors Light, Budweiser, Miller Light) represent $10 billion in annual revenues, according to IRI. For comparison, the entire craft beer industry is worth around $20 billion, split amongst around 4,000 brewers. For more comparison, Heineken International, which would become the second-biggest beer company if the merger went through without regulation, is also worth about $20 billion (pdf) -- less than a third of the new entity.
In other words, this new company would be a financial beer behemoth -- "the last piece," as Gatza called it, to a flurry of acquisitions that's been going on since the '90s.
Expect the federal government to do some anti-trusting
US regulators have traditionally been pretty attentive to the country's beer industry, and probably will be in this case, as Gatza hypothesized in a blog post. When ABI acquired Modelo, the DOJ required "a sell-off to Constellation Brands-Beer Divsion, so it is hard to think that they would allow absorption of Miller [brands]"
Wait, what? Aren't they buying Miller and its brands?
Well, yes. But they may not be permitted to keep those brands in the US. Like all global industries, Big Beer can get pretty confusing, but the basic idea is that in the event of an acquisition, ABI would probably be required by the federal government to divest itself of control of SABMiller's US component (MillerCoors) by selling it. To whom? "Molson Coors or other large international entities," guessed Gatza, including "Constellation Brands—Beer Division, Heineken or Carlsberg" or even non-beer conglomerates.
Blue Moon and other "crafty" brands could be in limbo
Beyond the highly recognizable stuff like Coors Light and Miller Lite, MillerCoors (remember, this is the US component, of which Molson Coors holds 42% and SABMiller, 58%) has a ton of "crafty" brands and imports, including Leinenkugel, Pilsner Urquell, Peroni, and of course, Blue Moon. If the DOJ decides ABI can't legally hold onto MillerCoors brands, these brands may be a part of the mandatory sell-off, as well.
If Molson Coors picks up MillerCoors, which Gatza and other industry observers see as a strong possibility, then these brands will probably remain largely unchanged. But, "If another beer industry giant winds up with the Miller brands," he cautioned, "there’s more likely a chance [that] there would be an attempt to move the Miller brands out of the distribution houses where they currently are, and into distribution houses that align with” that buyer, which could mean turmoil.
But the craft beer industry probably won't be impacted much
The craft beer industry doesn't really compete directly with the big guys anymore. These days, they compete more with one another (with increasing frequency and severity), so most small brewers are insulated from any acquisition. Wrote Gatza in his post, "my first thought is that most craft brewers operate in a different sphere [and...] would look at a potential deal of Anheuser Busch-InBev and SABMiller as not relevant to their businesses." On the phone he emphasized this point, saying that -- at most -- big regional craft brewers (Sierra Nevada, Lagunitas, etc.) may feel ripples of this sale.
The deal could take a year to complete
"It varies, and a lot of the reason why is that 'regulator' piece. Between the companies, it can go through in a few months, but if [regulators] attempt to stop [the sale], then that could slow it down" significantly, warned Gatza. The Wall Street Journal predicts that the merger -- which would be 2015's largest to date, at an estimated price of $130 billion -- could take up to a year.
Coca-Cola, Burger King, Philip Morris, and Heinz are sorta entwined in this, too
In an odd bit of globalized corporate incest, SABMiller supplements its beer business by providing bottling services for Coca-Cola in Africa. Altria, Inc., the parent company of tobacco heavyweight Philip Morris, is a minority owner of SABMiller. On the other side of the table, 3G (the Brazilian private-equity fund behind ABI), has also "orchestrated takeovers" of Heinz & Burger King in the past, according to Reuters.
This has nothing to do with the beer implications of the deal, but it does serve as a reminder that big corporations are basically all intertwined in some way. Capitalism!
Conclusion: what this means for you
Despite the massive corporate upheaval that a deal like this could bring about, the average beer drinker -- me and you -- don't have much to worry about. "There probably won't be much in the way of noticeable changes" if Molson Coors buys MillerCoors, hypothesized Gatza. Beers are heavily branded products (you know this), so it's unlikely ABI would rename all Miller's beers, change their colors, or meddle with their production recipes, he said.
For now, though, it's status quo. This is just the beginning of the process, and it all might go nowhere anyway. The beer-drinking world will just have to wait and see.