AB InBev likely to centralize combined company’s structure, says analysts

The merger of the world’s two largest beer companies, AB InBev and SABMiller would likely bring about a more centralized and standardized operating model than a SABMiller culture that fostered regional independence, according to industry analysts.

SABMiller’s integration into AB InBev is likely to end the partnerships and equity stakes it has around the world. The combined company is likely to follow a centralized structure that focuses on global brands like AB InBev’s Budweiser, Stella Artois and Corona versus SABMiller that has historically believed in nurturing local brews like Hero and Trophy Lager in Nigeria.

AB InBev had a profit margin of 39.4 Percent last year, to 29.5 percent for SABMiller. Investors are more interested in sustainable earnings growth.

For SABMiller, its operating ethos was much decentralized, according to former executives. The managers were encouraged to use their own initiative and judgment.

Analysts say that Carlos Brito, AB InBev’s chief executive will “have no compunctions at all about throwing over this rather delicate operational culture for something that’s more financially driven.”

Brito is known as a cost-cutter and a performance analytics in the industry. His mentors are billionaire founders of private equity firm 3G Capital who collectively own about 52 percent of the company.

Analysts expect the combined company to sell-off a lot of the equity stakes SABMiller held with other brewers, assuming anti-trust regulatory requirements do not force a divestiture. For instance, SABMiller held a 49 percent stake in China Resources, maker of Snow beer brand in China. Many analysts expect the combined company to sell-off its stake in the joint-venture because the Chinese government would never allow it. Analysts point out that while the joint-venture might be the top selling beer by volume in China, it is not very profitable and runs counter to AB InBev’s business model.

“AB InBev wants to run businesses they control, where they can easily leverage their know-how,” an industry banker said, noting that such a structure is also better for shareholders.

“If you’re an investor, you’re buying into the management team operationally.”

Last November, SABMiller combined its Coca-Cola bottling operations in Southern and Eastern Africa with The Coca-Cola Company to form what is known as Coca-Cola Beverage Africa. Analysts think that entity would likely be sold but AB InBev could decide to keep SABMiller’s relationship with French wine and beer maker, Castel Group.

Castel Group is a French alcoholic beverage company that is very active in Southern and Easter African market. SABMiller entered into a partnership with Castel, where SABMiller owns 20 percent stake in the company’s African operations, while Castel holds 38 percent of SABMiller’s African business. Both companies split up several markets in Southern and Eastern African countries, where they do not compete against each other. The combined companies (SABMiller and Castel) control about 55 percent of the African beer market.

Analysts feel that the relationship with Castel is very important for AB InBev since it lacks experience in Africa. However, they are not sure about the future of SABMiller’s 24-percent stake in Turkish brewer, Anadolu Efes.

They say the merger of AB InBev and SABMiller comes with a growth element. It is about trying to offset the declines they have in other parts of the world. Much of AB InBev’s marketing focus and ambition is bringing its global brands like Budweiser and Stella Artois to as many markets as possible. AB InBev’s objective is to “become the Coca-Cola of the beer industry.”

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