What happens to AB InBev, SABMiller’s soft drinks bottling operations?

AB InBev formally agreed to buy its smaller rival, SABMiller on 11th November, in a $108bn mega deal that would see it control 30 percent of global beer volumes.

While the brewer works out the finer details before the deal can be finalized, such as regulatory issues in some markets, there is the issue of how to resolve the ownership of their soft drinks assets. While both companies are known for their beer brands, they also bottle soft drinks in some key markets to complement their products.

SABMiller was up until the merger, a key bottler of Coca-Cola products in Africa and Latin America, while AB InBev bottles PepsiCo products in Latin America.

Coca-Cola and PepsiCo are global rivals in the soft drink business and AB InBev have often been mentioned as nursing an ambition to someday acquire Coca-Cola. Coca-Cola Chief Executive, Muhtar Kent, have often warned his executives that 3G Capital Partners LP, who have controlling shares in AB InBev might someday, try to acquire Coke.

However, insiders say the soft drink giant has change-of-control clauses that would allow it to buy back SABMiller’s soft drink bottling and distribution assets or sell them to someone else.

The problem is that Coke has invested massively into its Southern African bottling assets, the largest on the continent. Just last November, it engineered a deal to merge operations with SABMiller and privately held Gutsche Family Investments to create the “Coca-Cola Beverages Africa,” which spans 12 Southern and Eastern African countries and bottles 40percent of Coke’s volumes on the continent.

The dilemma for Coke is whether to allow AB InBev into the tent, so to speak, says analysts, who think allowing AB InBev to keep Coca-Cola Beverages Africa would be akin to the ‘Trojan Horse’ in Homer’s Iliad. The fear for Coke is that the ever acquisitive AB InBev may someday decide to acquire it.

Coke’s merger with SABMiller and the Gutsche family in Southern Africa has already been stalled by the South African regulatory authorities. That could create additional delays now that AB InBev has formally agreed to acquire SABMiller.

Coke could try to sell SABMiller’s Coca-Cola Beverage Africa’s assets to another partner, but it is unclear to whom. SABMiller also bottles Coke products in El Salvador and Honduras and handles about 3 percent of Coke’s global volume, according to Coke.

This won’t be the first time a brewer bottles and markets Coke and Pepsi brands in different markets. SABMiller bottles Pepsi in Panama. Carlsberg AS and Heineken NV bottle Coke products in some markets and Pepsi in others, although not on the share scale of SABMiller or AB InBev.

Beverage Analysts see a scenario where Coke agrees to join AB InBev in the new union with SABMiller but only if AB InBev agrees to divest itself of its bottling operations of Pepsi products. They say AB InBev might be more interested in the Coke operation in Africa than the Pepsi in Latin America, where the brewer already has its own growing soft-drinks business with brands like Guarana Antarctica.

AB InBev currently bottles Pepsi products in Brazil, Argentina, Bolivia, Uruguay, Peru, and the Dominican Republic. The bottling agreements expire at the end of 2017 but are automatically renewable for another 10 unless one of the parties decides not to and gives notice before the end of2015.

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