World: AB InBev wins approval for its takeover of SABMiller plc

Anheuser-Busch InBev NV on September 28 won approval for its $100 billion takeover of rival SABMiller PLC, ushering in a new world order for the beer industry.

Shareholders voted overwhelmingly in favor of the $100 billion-plus acquisition, one of the largest in corporate history. AB InBev will drop the SABMiller name and begin trading as a combined company Oct. 11.

It also strengthens rival brewers who were able to scoop up discarded pieces of SABMiller. AB InBev sold off dozens of brands to gain regulatory approval for the deal, including Miller Lite, Peroni and Snow, the world's top-selling beer.

The takeover is just the latest in a string of acquisitions for the Budweiser brewer. Built through the 2004 combination of Brazil's AmBev and Belgium's Interbrew, the company has now bought four major brewers since 2008, including Anheuser-Busch Cos., Mexico's Grupo Modelo and Korea's Oriental Brewing.

Its pursuit of SABMiller began a year ago at a time when Belgium-based AB InBev was struggling to revive Budweiser in the U.S., its biggest market, and facing an economic downturn in Brazil, its second-biggest market.

Acquiring SABMiller eases its reliance on those businesses by adding operations in South America, Australia and Africa. In volume, the deal makes AB InBev more than double the size of its closest rival, Heineken NV, which will have an 11% market share, according to industry tracker Plato Logic. The Belgian brewer's share of global beer profits will be four times greater than Heineken, according to beer analyst Trevor Stirling of Sanford C. Bernstein.

Africa, one of the last remaining growth markets for the beer industry, will become 9% of revenue and a major focus at the company. The region's beer volumes are expected to grow three times faster than the rest of the world in the coming years, increasing the continent's share of global volume to 8.1% by 2025 from 6.5% in 2014, according to AB InBev.

"The combination is all about accelerating our revenue growth, and one region which will drive much of that growth is Africa," Chief Executive Carlos Brito said during a call with analysts last month.

However, SABMiller comes at a steep price, Mr. Stirling said. He estimates it will take about 10 years for AB InBev to recoup what it spent on SABMiller, nearly five times as long as it took for it to recover the $52 billion it spent on Anheuser-Busch in 2008.

The cost of the deal rose as AB InBev sold off SABMiller assets to appease U.S., European and Chinese regulators. Rivals were able to pick up those businesses at attractive prices as AB InBev sought regulatory approval.

In the U.S., AB InBev sold SABMiller's 58% interest in the joint venture MillerCoors LLC to Molson Coors Brewing Co. The $12 billion acquisition makes Molson, which previously owned 42% of MillerCoors, the world's third-most profitable brewer, up from fifth-most profitable, according to Sanford C. Bernstein.

Denver-based Molson overnight will become the U.S.'s second-largest brewer with a 25% market share. It is poised to challenge AB InBev, which has a 44% market share.

At a beer distributor conference on September 26 in Chicago, MillerCoors Chief Executive Gavin Hattersley said the company will attack AB InBev's top-selling Bud Light brand with a series of advertisements that begin airing Sunday. The ads will call out Bud Light for having more calories and less taste.

"We've talked a lot about getting back to growth. That's our mantra," Mr. Hattersley said.

In Europe, AB InBev agreed to sell global rights to the Italian beer Peroni and Dutch beer Grolsch to Asahi Group Holdings Ltd. The Japanese brewer plans to use the European beers to help bolster international distribution of its flagship Asahi brand and expand its business outside Japan, where a shrinking, aging population limits growth.

In China, AB InBev agreed to sell SABMiller's Chinese beer business to China Resources Beer Holdings Co. The Chinese brewer agreed to pay $1.6 billion for the business, about half the fair value of the company, according to Mr. Stirling.

The deal gives government-controlled China Resources SABMiller's interest in Snow, the world's best-selling beer by volume and a 30% market share in the country. But the company has struggled in recent years as young Chinese drinkers shift to wine and liquor from beer.

China Resources will look to reverse that trend at the same time AB InBev, which retains an 18% market share in China, continues to push higher-priced beers like Budweiser, along with Harbin, a local brew.

After the deal closes, AB InBev is expected to move forward with the sale of additional European brews, including Pilsner Urquell. It agreed to sell SABMiller's businesses in Hungary, Romania, Czech Republic, Slovakia and Poland to gain European approval. Combined, they accounted for about $2.3 billion of SABMiller sales, according to Exane BNP Paribas analysts.

AB InBev recognizes the deal could embolden rivals. Speaking to its U.S. distributors at its own Goose Island brewery in Chicago on September 27, AB InBev Vice President of U.S. Sales Alex Medicis highlighted how the company had reduced its loss of market share relative to rival MillerCoors over the past year. He compared the competition to a foot race.

"This is not a boxing fight," Mr. Medicis said. "We need to keep running and keep running faster."

28 September, 2016