News broke back in September that a potential “super brewery” was in the making, as the world’s leading brewing company, Anheuser-Busch InBev (BUD), was interested in buying out its main rival and the world’s second-largest brewing company, SABMiller (SBMRY).
A deal has yet to officially go through, but the potential merger would be the largest in brewing history, possibly ranking among the top 10 takeovers of all time.
It’s an interesting headline, but the real opportunity lies elsewhere. Before we get to that, let’s dig into the details of the proposed merger.
The new global brewing giant would rake in annual sales of $55 billion, thanks in part to its ownership of 18 of the world’s 40 most popular beer brands by volume — and nine of the top 20 — including Bud Light, Budweiser, Miller Lite, Stella Artois, Corona Extra and many more. Its customer base would span across six continents, with an offering of more than 400 beer brands.
Shares of SBMRY climbed as high as $59 (a 27.5% increase) on September 29 after the news broke on September 16, but have since pulled back to prices closer to $56 as many investors question whether or not the deal will actually go through. BUD has already made three separate offers, all of which have been rejected because SABMiller management believes the company is being undervalued.
BUD Stock Faces Multiple Hurdles
The latest of BUD’s proposals, which came in on Wednesday, was for 42.15 pounds ($64.34) per share in cash, which would value the company at $104 billion — a 44% premium over where SBMRY was trading before the takeover talks began. However, SBMRY is looking for a valuation of closer to $110 billion, which would represent a share price of 45 pounds ($68) and a 50% premium.
According to United Kingdom rules, Anheuser-Busch has until October 14 to come forward with a formal bid before having to give up its approach.
Merger and acquisition (M&A) activity in the brewing industry has increased over the last couple of years as many drinkers — younger ones in particular — look more toward independent breweries for their favorite beverages, forcing the larger corporate leaders to defend their declining market shares.
For example, BUD has recently bought out Seattle’s Elysian Brewing, Oregon’s 10 Barrel Brewing and Chicago’s Goose Island while SBMRF took over London’s Meantime Brewing Company in May. A merger between BUD and SBMRF would only boost each of these company’s market share further.
The Better Play
Even assuming BUD presents SABMiller with a more attractive offer (in the latter’s opinion, at least), I’m not completely convinced the deal will make it through regulatory hurdles. But even so, consolidation in the industry opens up a potentially attractive opportunity in another brewing company.
Molson Coors Brewing Company (TAP) is another leading global brewer and is actually the second-largest in the United States through a 2008 joint venture with none other than SABMiller. The company has 28% of the country’s brewing market share, thanks in part to well-known brands including Coors Light, Blue Moon, Leinenkugel’s, Redd’s Apple Ale and Blue Moon.
TAP is also a leading brewer in Canada, Central Europe, the U.K. and Ireland, and it sells to more than 50 countries through an operation channel of 31 breweries.
But why do I see an opportunity here?
TAP already has strong market share, and as a large independent company, I believe it could sail past regulators should it decide to join in on the recent M&A activity.
Molson Coors has also benefitted from the takeover talks between BUD and SBMRF, climbing as much as 18% to a new 52-week high of $85.79 on September 29. And while the stock is currently trading around $81, I believe any further consolidation talks and/or deals will only continue to boost these shares higher.
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