What does the 4th biggest corporate merger of all time mean for the brewing industry?

3 November 2015

Peter Wardle

Peter Wardle


Earlier this month the Brewing industry was shaken by the news that the board of SABMiller had accepted an offer from Anheuser-Busch Inbev of £44 per share, valuing the company at £68bn.

The deal will see the brewing industry’s clear number one player acquire the number two, and create a global brewing Goliath that will collectively produce over a third of the world’s beer, and generate over $70bn revenue.

The deal was not unexpected (SABMiller had rejected numerous previous offers over the course of a long courtship, reportedly as low as £38 per share initially), but it does represent a remarkable achievement by AB Inbev nonetheless. The repercussions of this deal will reverberate across the industry and competitors, retailers, suppliers, and consumers will find that this new brewing giant casts a very long shadow indeed.

How did it all happen?

At the start of my career, way back in June 2000, I was part of the Bass Brewers organisation which was sold by Bass PLC to Belgium’s Interbrew for £2.3bn, a deal which began the fragmentation of the former Bass empire and changed the face of the licensed trade in the UK. The sale was scuppered by the Competition Commission’s refusal to sanction a deal which would have seen Interbrew achieve a 32% UK market share, and consequently Interbrew was forced to sell the England & Wales business of Bass. Such a setback may have deterred less ambitious organisations, but not this one. Having already acquired Whitbread’s beer business in May 2000, the company embarked on a breath-taking programme of M&A activity which would see them rapidly rise from the world’s 5th largest brewer to the dominant global brewing powerhouse. 

In 2004 Interbrew and AmBev merged, creating the world’s largest brewer, Inbev. Then in 2008, a deal to acquire Anheuser-Busch (America’s largest beer maker and fixture of American culture) for $52bn was completed, creating Anheuser-Busch Inbev. The acquisition of SAB Miller will see the newly combined entity occupy the number one or two position in 24 of the world’s 30 biggest beer markets, and take its place alongside Nestle and P&G as the world’s largest consumer products organisations.

What are the implications for everyone else?

Whilst competition in an industry which is already characterised by over capacity of supply just got tougher for AB Inbev’s competitors, that doesn’t mean to say that Carlsberg, Heineken, Molson Coors and the rest will be content to make up the numbers. Molson will carefully consider its position in the US Market due to its existing MillerCoors joint venture with SABMiller, and AB Inbev will be required by the competition authorities to divest some of its assets which will be of interest to the other players.  Scraps from the master’s table perhaps, but juicy scraps nonetheless if it means an opportunity to consolidate or establish a market position.

Closer to home, it will be interesting to see how competition plays out between the big four brewers in both the UK, off & on-trade.  News of Tesco’s decision to delist the Carlsberg portfolio as part of ‘Project Reset’ will have delighted Executives in Edinburgh, Burton and Luton, but they will beware the wounded Tiger and will expect an inevitable backlash as Carlsberg seeks to offset share loss in other Retailers and Channels.  In the on-trade meanwhile, the Craft Beer movement has been rapidly gathering force, and has led the big brewers to make selective acquisitions to bolster their presence in this buoyant category, such as SABMiller’s May 2015 acquisition of Meantime, and on a smaller scale Molson Coors’ purchase of Franciscan Well in 2013. 

It remains to be seen whether the big brewers can hold back the craft beer tide, or whether they will be overcome by the tsunami.  More and more craft breweries are establishing themselves, encouraged by progressive beer duty which offers tax breaks for micro-brewers, and are eating into industry volumes. There are now more than 800 breweries in the UK, more than at any point since the 1940’s, with around 80 new breweries opening each year.  Although on a small scale, this trend is driving a fragmentation of the beer market as the drive to discover ‘something different’ captures the consumer’s imagination.

For grocery retailers, the news of AB Inbev & SABMiller’s tie-up will present both challenges & opportunities.  AB Inbev will be keen to flex its new muscles in negotiation with retailers, whilst the competition will fight even more aggressively to shore up their market share and absorb the headroom from the Carlsberg fallout.

All of which promises much for the consumer who can expect to benefit from keenly contested promotional activity in shopping aisles, expanded choice of craft beer styles on the bar, and an extra 1p per pint in their pocket thanks to the Chancellor’s third annual duty reduction in the last Budget.  It’s a good time to be a beer lover (whether that’s the top-fermenting or the bottom-fermenting variety).

2016 in the brewing industry promises to be an absorbing spectacle for the onlooker. Cheers!


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