Anheuser Busch InBev (AB InBev) takeover of SABMiller last year creates opportunities for the number three beer company in the world, Heineken, which would move up to number two spot, albeit a distant second when the AB InBev/SABMiller merger is finalized later this year.
The merger of AB InBev and SABMiller has forced AB InBev to dispose-off some of SABMiller’s joint-venture partnerships in key markets in order to appease competition regulators, where their combined market power would have made them a monopoly. AB InBev agreed to divest itself of the 58% stake SABMiller held in MillerCoors in the US, agreeing to sell it back to Molson Coors, SABMiller’s joint-venture partner. Similarly, AB InBev has agreed to sell SABMiller’s stake in Peroni, Grolsch and Meantime brands to Asahi Group Holdings of Japan and SABMiller’s 49% stake in CR Snow to China Resources (Beer Holdings) Ltd, SABMiller’s joint-venture partner.
Family controlled Heineken will come under a great deal of market pressure if it does not seek to expand its market presence in markets where the merged entities of AB InBev/SABMiller have substantial presence, says analysts.
“I don’t think it’s a good idea. They’ll go head-to-head in Europe and Africa,” said Morningstar analyst, Phil Gorham.
“Life is going to be difficult for the likes of Heineken and Carlsberg.”
Carlsberg, the number four beer company in the world, soon to be number three – post AB InBev/SABMiller merger is struggling with weak sales in Russia and Ukraine, but would have limited overlap with the merged entity of AB InBev and SABMiller. However, Heineken and Diageo are likely to feel the heat in Africa, where a rising middle class is increasingly drinking beer.
The merged entity of AB InBev and SABMiller would soak-up as much as half of the world’s beer profits and with fatter margins than rivals. It could also become more aggressive on price or marketing spend than rivals, such as here in Nigeria where SABMiller’s share of the market is around 10%.
In addition, the newly merged entity of AB InBev and SABMiller would likely push its premium brands, Budweiser, Stella Artois and others into a host of new markets, thereby threatening the dominance of Heineken as an international, premium beer.
So what does the future hold for the global beer industry? Analysts at Susquehanna International Group (SIG), a global investment firm, think that Heineken is in an enviable position to make a bid for Molsen Coors, number two Beer Company in the US behind AB InBev.
SIG says that a successful takeover of Molson Coors would bring Heineken’s global volumes from 18bn hectoliters to 28bn hectoliters –still short of AB InBev’s post SABMiller volumes of 57bn hectoliters, but certainly better than where they are today.
Heineken’s takeover of Molsen Coors will provide immense benefit to Heineken in the US, where it does not have the distribution network like its bigger rival, AB InBev. Molsen Coors owns Coors Light, the second biggest beer brand in the US, and as such could help Heineken get its Mexican beer brand Tecate into more markets, SIG says. At the same time, Heineken’s premium portfolio could balance Molson Coors’ value-heavy offerings in the US and narrow the value gap with AB InBev, the analyst said.
Elsewhere, a merger of Heineken and Molsen Coors would help Molsen Coors gets its brands in Eastern Europe, where Heineken has an established market presence. The same would hold true in Latin America and Asia, although the companies’ combined assets in Western Europe could lead to regulatory issues SIG says.
So how much could such a deal cost Heineken? According to SIG, Heineken could expect to pay in the neighbourhood of $23bn for Molsen Coors, a price tag the analysts say is “manageable.” Any deal would probably also see the Molsen and Coors families take a stake in Heineken.
The question becomes, does Heineken have the stomach for such a deal? In November, management said it was in no mood to buy more craft brewers after acquiring a 50% stake in Lagunitas Brewing Company in the US. With that said, acquiring Molsen Coors is no “bolt-on acquisition” and with AB InBev/SABMiller merger likely to be finalized later this year, life could get harder for Heineken and Diageo, if they do not step-up in their game to get a seat at the global beer table.