This is historic and altogether massive deal, but it ain't really about the US. Much more about Africa, where beer biz expected to grow substantially over next decade and ABI had virtually no biz. Key implications for US flow from simultaneously announced secondary deal: sale of SABMiller's 58% stake in MillerCoors to Molson Coors for $12 bil. (Details below.) Contrary to fears stoked in media by members of Congress and others expressing "concern" about potential impact on craft brewers' access, deal has no immediate impact on any current craft brewer or a single brand sold in US. Molson Coors will get every brand in MC portfolio, including Redd's and the imports, plus all rights to Miller brands sold internationally. Looks like ABI, mindful of what happened with Modelo purchase, wanted as "clean" and complete a deal as possible before taking it to the Dept of Justice. That won't stop Senators, attys, & advocates from asking for hearings, scrutiny, and more.
Deal Creates Another Stronger Competitor to AB in US There's a kind of double irony here. Most important impact in US: for 2d time in 3 years ABI did deal that simultaneously dilutes importance of US biz as % of global biz and strengthens key competitor here. Last one was purchase of Grupo Modelo. And just as Constellation became far stronger competitor to AB in US, Molson Coors/ MillerCoors likely to be stronger competitor here now too, certainly financially. Table below shows dilution effect:
|ABI 2014||New Company|
|US as Share of beer colume||27.7||18.0|
|US as Share of Revenue||30.0||22.0|
|US as Share of EBITDA||32.5||24.9|
In new company, biggest share of revs (33%) and EBITDA (40%) will be Latin America. North America comes next at 26% and 28% respectively. Mexico, Africa, Asia Pacific and Europe each between 8-13% of revs and 7-9% of EBITDA. SABMiller really gives ABI balance. ABI adding hundreds of brands globally. Unbelievably, it will have #1 or #2 brand in 24 of 30 largest global markets! Opens door for new brands to join AB fold in US (as long as they're not already here in MC portfolio). But with US a smaller part of global beer/beverage co, will that impact focus, investment and/or M&A strategy in US? As deal announced, Brito reiterated ABI's focus on top-line growth, including its continued commitment in US. AB has already said it will increase spending here in 2016. In M&A, AB bought 3 craft brewers in last 12 mos and has a couple more deals in hopper, we hear. Will that activity slow down as it tries to clear SABMiller acquisition with Justice?
What's the Next Big Deal? Things Go Better with Monogamy With its insatiable appetite, gotta already wonder what's next big deal for ABI in a few yrs. Perhaps Coke? ABI and SABMiller together sell about 100 mil bbls of soft drinks. HSBC analyst Carlos Laboy addressed this at Beer INSIGHTS Seminar, saying: "If I'm Coke I'm worried, because I'm next." ABI will be 2.7X net debt to EBITDA within 3 yrs after deal, Carlos figures. It will be 1.5X-2X larger than Coke. Given Coke's inefficiencies and operational weaknesses, "to me it's like Disney World for ABI." That's where AB "thrives," making money in those situations. In any case, "if I'm the Coca-Cola company one of the things I'm requiring is monogamy. The idea that ABI could be a Pepsi bottler in Latin America and the largest Coke bottler in Africa I think is going to be really tough for Coke to swallow. For us it seems like a pretty easy decision for ABI."