The world's biggest beer companies have engaged in a very public fight over their merger and all the signs are that the process will go hostile. The difference between the first offer and this third one tabled today seems particularly modest at 11%, given that buying SABMiller (SBMRY) would grant Anheuser-Busch InBev (BUD) true world dominance in the beer sector -- but at the same time a major shareholder likes it, so it may yet be accepted.
What is the reasoning behind this colossal beer merger? AB InBev is the world's largest brewer, in an already greatly concentrated market: Anheuser-Busch InBev, Heineken, SABMiller and Carlsberg control almost 50% of the global beer market, according to data from Euromonitor quoted by the BBC.
AB InBev is the biggest of the Big Four, with a massive 20.8% market share, followed by its acquisition target, SABMiller, with less than half that (more exactly, 9.7%).
At first glance, it seems the market leader wants to buy the second-ranked brewer pretty badly, since it has raised its offer three times. The company said in a statement published on its website that it wants to "build the first truly global beer company" and declared itself disappointed with the fact that the SABMiller board rejected its previous offers, of 38 pounds and 40 pounds per share.
"AB InBev is disappointed that the Board of SABMiller has rejected both of these prior approaches without any meaningful engagement," it said. Talk like that really shows you that the company is keen to take the hostile route with its bid.
On its part, SABMiller published on its website its own account of the talks, and from the target company's point of view, this new offer represents an increase of just 15 pennies per share to what AB InBev had already proposed. That's because, SABMiller says, when representatives of the two companies met on Oct. 5, AB InBev also mentioned the possibility of raising the offer further, to 42 pounds a share, which some of the SABMiller board members indicated that they would reject too.
The ones who didn't reject the potential 42 pounds a share offer at the time are the directors nominated by major shareholder Altria (MO), which owns a stake of around 27% in SAB Miller, and which found the offer tabled today agreeable, according to Reuters. Altria could swing other opinions too. I asked Jim Cramer earlier today what he thought of the deal, and he said "if Altria is for it, I am," indicating that the company's pragmatic approach may win the approval of market experts.
AB InBev is right in saying the merger would create a truly global beer company. To its famous brands such as Budweiser, Stella Artois and Corona, SAB Miller would add other well known brands such as Peroni and Grolsch, but also hundreds of smaller brands in emerging markets.
This prospect of advancing in emerging markets, and particularly in Africa, which AB InBev said in its statement "has hugely attractive markets with increasing GDPs, a growing middle class and expanding economic opportunities," is what's behind the bid.
Emerging markets may be in the doldrums now, but for the longer term their populations are rising faster than the ones in developed countries, and consumers there are keen to combine new products with traditional ones.
However, the sheer size of the combined entity would inevitably lead to the cannibalization of some products and the disappearance of some brands, which would affect beer lovers negatively, despite AB InBev's assurance that the deal would be good for consumers.
Plus, anti-trust authorities in some countries may force the merged entity to get rid of some units, which following the merger could be considered to have become monopolies. Here is where Jim Cramer sees an opportunity for investors: the way to profit from this merger, actually, is by buying Molson Coors (TAP), which "will win because of the divestitures."
There is an old saying in Eastern Europe that goes: when two are fighting, a third one wins. This AB InBev ¿ SABMiller saga is the perfect illustration of it.