AB InBev tie-up with SABMiller unlikely in short term – analyst

We asked alcoholic beverages analyst Zsuzsa Szilagyi, from Euromonitor International, whether – following last week’s announcement of the potential $20bn tie-up – she believed AB InBev’s takeover of Modelo could spark further industry consolidation, and if so, who it would involve?

Szilagyi noted that global beer industry consolidation was already very high, with the top five global brewers – AB InBev, SAB Miller, Heineken, Carlsberg are the top four – accounting for nearly half of global beer volumes in 2011.

Fewer targets, higher prices​

Several big M&A deals in recent years (Heineken’s takeover of FEMSA in 2010, SABMiller’s takeover of Foster’s Group) Szilagyi noted, meaning that there were few targets left to acquire, while prices were becoming very high. “So there is limited scope for further acquisitions,” ​she said.

Szilagyi added: “I think a SABMiller AB InBev tie-up is quite unlikely in the near future. Although the two companies could benefit from their complementary footprints, the deal would involve antitrust concerns (mainly in the US and China) and it would be highly complex and expensive.​

“Grupo Petropolis in Brazil is a highly attractive acquisition target, and Heineken would definitely be interested in it. But as it is a private company, it is up to its owners whether they sell or not, and probably even if they decide to sell, they will ask quite a high price.”​

Petropolis holds an 11% stake in a Brazilian beer market dominated by AB InBev (70%). Since Heineken already owns the nation’s number four player Kaiser, analysts have tipped it as the frontrunner in any potential future deal for Petropolis.

Challenge Heineken in Mexico​

Due to its market-leading position and established distribution network in Mexico, Grupo Modelo was already a strong rival for Heineken in Mexico, Szilagyi noted, and asked whether the new tie-up could create price pressure for the Belgian company, she said:

“A-B InBev with its strong financial capability and strict cost management can definitely support Modelo’s competitiveness and challenge Heineken, but I think both companies will be able to take advantage of the forecast beer volume growth in the country.”​

“I don’t think there will be a price pressure, but I expect both companies to focus more on the small but growing premium segment to enhance their margins​,” Szilagyi added.

She said that analysts had always expected that AB InBev would eventually snap-up Grupo Modelo, but due to the latter’s private ownership it was quite difficult to predict when it would happen.

Rationale for sale?​

Before the AB InBev deal Modelo management had fought to retain their independence, Szilagyi said, adding that in 2012 the firm even switched its Chinese distribution from AB InBev to Carlsberg.

“I think that Heineken’s entry to the market was probably one of the reasons why Modelo’s owners decided to sell now,”​ Szilagyi said.

“But there are also other factors, such as the anti-monopoly law, which came into effect in 2011, trying to reduce the power of the duopoly and help the emergence of smaller players in the market​.”

The anti-monopoly law is expected to assist small beer producers who had previously faced supply and distribution barriers as a result of Mexico’s market duopoly.