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10 SABMiller Takeover Facts - WMNews Ep. 50

VO: Rebecca Brayton
Script written by Sean Harris. When two massive beer companies meet, the money involved is enough to make you dizzy. And that’s before you’ve sampled any of their products. Welcome to WatchMojo News, the weekly series from where we break down news stories that might be on your radar. In this installment, we’re counting down 10 crucial facts you should know about the SABMiller Takeover.

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10 SABMiller Takeover Facts - WMNews Ep. 50

When two massive beer companies meet, the money involved is enough to make you dizzy. And that’s before you’ve sampled any of their products. Welcome to WatchMojo News, the weekly series where we break down news stories that might be on your radar. In this installment, we’re counting down 10 crucial facts you should know about the SABMiller takeover.

#10: What Is SABMiller?
The Takeover

SABMiller is the world’s second-largest beer brewer, holding close to 18% of the industry’s global profit pool. Though based in London, England, it’s a South African company, with origins that date back to 1895. Known simply as South African Breweries (SAB) for over a century, it acquired Miller Brewing in 2002, and has been trading as SABMiller since. The subject of a massive acquisition bid in October of 2015; SABMiller’s major beer brands include Fosters, Miller, Grolsch and Peroni.

#9: Who Is AB InBev?
The Giant

Anheuser-Busch InBev is the world’s largest beer brewer, holding almost 40% of the global profit pool. In October 2015, AB InBev announced that it was looking to take over SABMiller, in what would become one of the biggest business mergers of all time. The company is already the product of mergers made between three international groups; Belgium’s Interbrew, Brazil’s AmBev, and the US company, Anheuser-Busch. In 2014, AB inBev generated over $47 billion in revenue, and already held over 40% market share in seven of its top ten markets – including the United States and Canada. Budweiser is probably its most famous brand.

#8: What Are the Details of the Takeover?
The Deal

AB InBev made their bid to buy SABMiller on October 13th, 2015. It was the fifth time that SABMiller was approached by their market superior, after the previous four efforts were deemed not lucrative enough. The latest bid was accepted in principle, with AB inBev having until October 28th, 2015 to make a firm, official offer. The deal has been dubbed ‘Megabrew’, and it was made at the very last moment. Under UK takeover law, Wednesday, October 14th was the deadline day for any acquisition bids.

#7: How Much Is the Takeover Worth?
The Financials

As of mid-October 2015, AB InBev has been preparing to pay SABMiller $67.62 a share, amounting to a $109.4 billion total takeover cost. Their highest previous bid had been almost a dollar less per share, at $66.85. However, should the merger receive all necessary approvals and allowances by regulators, then it would create a $250 billion company, in control of a third of the world’s beer supply. Once the pre-October 28th official bid is lodged, should AB InBev fail to complete the deal, they would still be obliged to pay SABMiller up to $3 billion.

#6: How Big Is the Worldwide Beer Industry?
The Effect

In general, beer is big business, and it’s getting bigger. From 1998 to 2014, global annual production levels have steadily risen to 1.93 billion hectoliters. However, critics usually compare current European and Asian markets more favorably than those in North America, which are sometimes described as ‘stagnant’. SABMiller holds brands that are especially popular in Europe (Grolsch and Peroni in particular), and would therefore bring an inevitable boost to the AB InBev brand, which tends to dominate North and South America.

#5: What Is Craft Beer?
The Underdog

The Brewers Association defines craft beer using three important terms; it has to be small – with an annual production of 6 million barrels or less. It has to be independently owned and it has to be traditionally made, with traditional ingredients. By keeping these guidelines in mind, craft beer brewers generally produce a wide variety of tastes, and types of beer, focusing primarily on a never-ending quest to innovate and improve the brewing process. This relentless drive has paid off; in fact, America’s craft beer revolution has seen the number of barrels produced explode from a mere 9 million in 2008 to 22 million in 2014. This demand for craft beer has resulted in a sizeable market share of 11 percent, which is the first time the number has ever reached double digits in U.S. for small and indie brewers.

#4: How Will This Affect the Craft Beer Industry?
The Effect

As it stands, big beer companies have had to change their strategies as they deal with the rise in popularity of craft beer. They’ve done so by running ads disparaging snooty craft beer, by buying any craft brewer willing to sell or by selling their own versions of craft beer under different brand names, such as Coors’ “Blue Moon” or AB InBev’s “Shock Top.” Despite its uniqueness, however, the craft beer industry is forever fighting against internationally recognized corporate chains, such as SABMiller and AB InBev. The merger between those companies could heap even more pressure onto smaller companies, sealing off massive areas of the market from them, and leaving them unable to compete. On the other hand, positive implications might still emerge, as the ‘Megabrew’ deal could prove a blessing in disguise. For example, it could result in even greater commitment from the craft beer drinker to their favorite indie brand.

#3: How Did AB InBev Grow to Dominate the Market?
The Mergers

Of course, AB InBev wasn’t always the world dominating brand that it is today, and it began with a relatively humble $1 billion deal between two Brazilian brewers in 1999. In 2004, AmBev and Belgium’s Interbrew merged, establishing itself as the world’s largest brewer for the first time. In 2008, however, InBev reached out way ahead of its competitors by buying Anheuser-Busch for almost $60 billion. It also bought the brewer of Corona in 2012 for $20 billion, and has acquired various craft beer-style brewers within recent years. However, SABMiller has arguably performed slightly better in terms of recent craft beer adaptation, making the latest AB InBev purchase even more desirable.

#2: Will Competition Regulators Block the Deal?
The Risk

Unless AB InBev themselves back out of the deal, the only thing that could prevent it from happening is if competition and antitrust regulators step in, or if South African tax officials are left unhappy with the proposed merger, and therefore attempt to block it. At an early stage, it seems likely that AB InBev will have to sell off some of its brands, in order to meet market standards, especially in North America where the two companies stand to hold around 70% of the beer market. Other major brewers such as Carlsberg and Heineken are likely to be the first in line, should familiar brands be sold off.

#1: How Will the Takeover Affect the Beer Industry?
The Future

The global beer industry is entering into a largely unpredictable period. The AB InBev/SABMiller merger is one of the biggest corporate deals of all time, and will inevitably inspire massive change. Experts are already highlighting how difficult it could prove for AB InBev to make a profit on the takeover – with some suggesting that billions of dollars will have to be saved annually, or else brands will be sold off voluntarily. The craft beer industry will also be affected, although perhaps not as negatively as some commentators fear. The big, bad corporate rival has just gotten bigger and ‘badder’, in the eyes of the craft beer drinker – the only way to rise against, is to raise a glass of the lesser-known and local.

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