NEW YORK -- The suggestions that the No. 1 beer brewer in the world, Anheuser-Busch InBev, might buy No. 2 SABMiller in a mega-merger is raising its head again as SAB sets its sights on healthy sales growth in Africa.
"Anheuser’s buyout of SABMiller has been in speculation for years, but couldn’t be realized due to the large amounts of debt taken on by the former to finance its multiple mergers and acquisitions in the last five years," Forbes wrote this past fall. "But with steadily increasing cash flow and large input cost reductions, Anheuser might now look to acquire SABMiller, and lock-in its share in some South American and African markets, where beer is expected to grow at a fast pace."
In a March 13 research note, however, beverage analyst Nik Modi of RBC Capital Markets, offered five reasons ABI won't make a bid for SABMiller anytime soon.
"None of the obstacles we enumerate below is insurmountable," he wrote, "but together we believe they add up to a pretty convincing argument as to why such a deal is improbable."
- Culture. "ABI’s management can talk for hours about how important widespread equity ownership is in facilitating a long-term outlook and the company’s Rottweiler’ish cost management philosophy. We don’t recall ever having had a similar conversation with SABMiller."
- Geography. "We don’t believe that ABI is especially interested in the Australian (too mature) or African (too different) markets, both fundamental to SABMiller. In our view, there's a very strong likelihood that a combined ABI/SABMiller would not be allowed to retain the latter’s 58% stake in MillerCoors, which we believe would be a modest further complication."
- Brands. "In our view, ABI’s one big Achilles heel has been its inability to nurture and develop brands. But that doesn’t mean management isn’t desperately keen to do just that. ... We believe there are very few brands in SABMiller’s portfolio that would lend themselves to ‘globalization’ at the hands of ABI."
- Soft drinks. "ABI is PepsiCo’s bottler in Brazil. SABMiller is a large--and growing--bottler for Coca-Cola in Africa. Enough said."
- Control. "ABI likes to be in charge. In 2014, ABI earned just $9 million from associates, or 0.1% of its net income. The figure for SABMiller was $1.2 billion, over 30% of its net income."
Modi concluded, "Our focus here is exclusively on the strategic hurdles of a potential bid rather than the financial implications. But if we are right, the financial implications are unlikely to be pertinent."
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