Budweiser Swallows Miller

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What's going on?

AB Inbev, the maker of Budweiser, is buying SABMiller for over $100 billion in what is the biggest M&A deal of the year. Combined, they will be responsible for one of out every three beers drunk globally! (That’s the sort of friendship highlighted in the #BestBuds Super Bowl campaign!)

What does this mean?

Inbev’s desire to buy SAB was first reported about a month ago. Since then, it’s been a matter of negotiating the price; InBev, eventually, agreed to pay a hefty markup.   Why is InBev paying so much? Beer sales are decreasing in developed countries like the US, but they are still growing in emerging markets. SABMiller is the largest beer company in Africa and has a major presence in South America – InBev wants to expand in those markets in particular. It should be noted that the deal is not totally done as some countries’ regulators are concerned about this becoming a beer monopoly.

Why should I care?

  1. The bigger picture: The beer market is shrinking, so beer companies have to get bigger if they want to keep growing their profits. A combined company can do things like cut overlapping costs, thereby boosting profits even in a declining industry. In this instance, InBev is also targeting the last frontier of growth for beer: emerging markets.
  2. Personally: All beer companies seem to be winners on this news. SABMiller stock is up almost 50% since the deal was first rumoured. InBev stock was up because the combined entity should be a stronger, more profitable company. And MolsonCoors, another beer company, is going to benefit because SABMiller is going to have to sell them a US beer business (for legal, antitrust reasons).
Originally posted as part of the Finimize daily email.

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