World: AB InBev’s takeover of SABMiller leaves its Japanese rivals far behind

As the world's two largest brewers formally announced plans to merge, their Japanese rivals risk being left in their shadow, Nikkei Asian Review reported on September 29.

The proposed Oct. 10 deal between Belgium's Anheuser-Busch InBev and SABMiller of Britain was approved by shareholders of both companies. AB InBev will pay 79 billion pounds ($103 billion) to acquire SABMiller, creating a behemoth that will control nearly 30% of the global beer market.

The new company will also boast by far the highest profit margin in the industry and transform the competitive landscape.

In a September 28 shareholders meeting in Brussels, AB InBev CEO Carlos Brito stressed the benefits of the combination, saying it will be geographically complementary and create a foothold for the company in all the fast-growing markets.

Even if the new company has to sell its businesses in the U.S. and China to win the approval of antitrust regulators, it will still have a global share of around 27%. Its annual sales would amount to some $55 billion, 2.4 times larger than those of Heineken International, which will become the second-largest beer maker. The new company will not just be large but extremely profitable, with an expected operating profit margin of 30%, compared with 15% for Swiss food processor Nestle.

AB InBev, which has grown rapidly through a string of buyouts, chose SABMiller as its latest target because of the company's solid presence in Africa. While beer consumption in most industrial nations has been declining, demand in Africa is expected to grow briskly in the coming years.

SABMiller holds 42% of the Middle East-Africa market, according to Euromonitor International, a London-based market research specialist. AB InBev has just 1%. That makes the two brewers a good fit geographically.

While AB InBev has been expanding its global footprint over the past two decades, Japanese brewers have focused on their battle for the domestic market, particularly in the low-malt happoshu and no-malt "third-category beer" segments. These "non-beer" drinks are cheaper due to a loophole in Japan's liquor tax.

Now they face a Goliath in the form of AB InBev-SABMiller. Combined, Japan's two largest beer makers, Asahi Group Holdings and Kirin Holdings, are dwarfed by AB InBev alone. The Belgian brewer's operating profit is more than five times larger; its market capitalization is six times larger. The megadeal will widen the gap further.

Assuming the acquisition is approved, Kirin Holdings will be dethroned as the top seller in Australia. Kirin, owner of local brewer Lion, has a licensing agreement with AB InBev under which it sells popular brands, including Corona. The rights to those brands in Australia is likely to go to an SABMiller unit once the deal is complete.

Lion is Kirin's cash cow, generating over 60 billion yen ($593 million) in profit in 2015, half the group's total. Lion's strong earnings last year helped offset weak performance in Brazil.

A Kirin executive downplayed the impact of the merger, pointing out that the Japanese brewer will receive compensation for the cancellation of the licensing deal. But Kirin's loss of market share in Australia will nevertheless be a blow.

Meanwhile, Asahi has agreed to buy venerable European beer brands Peroni and Grolsch from AB InBev for more than 300 billion yen. A senior Asahi executive calls it a good purchase, but it is undoubtedly a risky bet for the company, which earns only 20% of its sales overseas.

30 September, 2016