Here’s How AB InBev Trimmed Business To Make Room For SABMiller

It’s no surprise that the over $100 billion acquisition combining Anheuser-Busch InBev (NYSE:BUD) and SABMiller was focused on potential growth opportunities in emerging markets, especially Africa. AB InBev had no meaningful presence in Africa, while SABMiller had a leading >30% market share in the continent prior to the combination.

According to AB InBev, beer volumes in Africa are expected to grow by 44% from 2014 to 2025, nearly three times the forecast global rate. ^[1] Africa, as a percentage of net global beer volumes, is estimated to reach over 8% by 2025, up from 4.4% in 2000. These compelling estimates back up why AB InBev was interested in penetrating the continent. Why acquiring a beer business that is already well established in Africa made sense is because of the relative difficulty to set up a business in the continent. The beer market in Africa is still relatively nascent, and as disposable incomes increase, and the beer-drinking culture spreads, beer volume sales are expected to rise. With strong distribution channels, and strong brand image, SABMiller brought in an opportunity for AB InBev to increase the reach and availability of its globally renowned brands, such as Budweiser and Corona.

But in order to secure this opportunity, AB InBev has also divested certain SABMiller interests to appease the regulatory watchdogs. AB InBev has now raised ~$27 billion from divestments of SABMiller’s interests in the U.S., China, and Europe, recovering more than one-fourth of the money it paid to acquire the world’s second largest brewer. ^[2]

This included:

1. In the U.S., SABMiller sold its 50% voting interest and 58% economic interest in MillerCoors to Molson Coors, its partner in the joint venture, for around $12 billion. The deal gives Molson Coors the global rights to the Miller brand, and also the right to continue selling brands it currently holds in its portfolio in the country (MillerCoors), including Peroni and Pilsner Urquell. Under the terms of the agreement, AB InBev cannot acquire another brewer, not even a craft brewer, without prior approval of the DoJ. The agreement with the DoJ, and its stringent conditions, will make it difficult for AB InBev to keep adding craft brewers to its portfolio, and thus, could take away the growth opportunity in this segment for the company, which is already facing declining beer sales volume in the U.S. where it has over 40% market share.
2. In China, AB InBev sold SABMiller’s 49% in its joint venture called CR Snow, with China Resources Enterprise, which has a leading >20% volume share in the country’s beer market, for $1.6 billion. Antitrust concerns led to the divestment in SABMiller’s interest in CR Snow, especially as AB InBev also has ~19% market share in China. AB InBev has reported a decline of 0.5% year-over-year in beer volumes in the country through the first three quarters, however, the brewer has been able to increase its market share in the country as the industry volumes declined by approximately 4.0% in the same period, due to continuing economic headwinds, with most of the impact being felt in the core and value segments.
3. In Europe, AB InBev sold certain of SABMiller’s premium European brands including the Peroni and Grolsch brands, and related businesses to the Asahi Group for ~$2.9 billion, and recently agreed to sell a group of SABMiller’s Central and Eastern European brands for around $7.8 billion to the Asahi Group, as well. The target business for Asahi in Central and Eastern Europe is spread across 5 countries — Czech Republic, Hungary, Poland, Romania, and Slovakia, including the Pilsner Urquell, Kozel, Tyskie, Lech, and other brands.

Recently, Coca-Cola also announced that it has agreed to buy AB InBev’s stake in Coca-Cola Beverages Africa for $3.15 billion, a stake AB InBev got by virtue of acquiring SABMiller. While AB InBev has had to divest a lot of SABMiller’s interests in the U.S., China, and Europe, this is consistent with the brewer’s apparent strategy to go after growth in emerging markets, and in particular, Africa.

Have more questions on Anheuser-Busch InBev? See the links below.

• Another Sale To The Asahi Group As A Consequence Of The AB InBev-SABMiller Merger
• Brazil Slowdown Weighs On AB InBev’s Financials, As Earnings Decline By More Than Expected
• How Will AB InBev Derive Growth In Brazil During Tough Times?
• AB InBev’s Q2 Results Marred By Brazil Slowdown And Currency Woes
• AB InBev: SABMiller Combination Could Make U.S. Business Weaker
• How Can AB InBev’s Asia-Pacific Beer Segment Grow In The Next Five Years?
• How Can AB InBev’s Mexico Beer Segment Grow In The Next Five Years?
• How Can AB InBev’s South America Beer Segment Grow In The Next Five Years?
• How Can AB InBev’s North America Beer Segment Grow In The Next Five Years?
• Where Will AB InBev’s Revenue And EBITDA Growth Come From Over The Next Three Years?
• What Is Anheuser-Busch InBev’s Revenue And EBITDA Breakdown?
• How Important Is South America For AB InBev?
• How Has AB InBev’s Revenue And EBITDA Composition Changed Over 2012-2016E?
• By What Percentage Have AB InBev’s Revenues And EBITDA Grown Over The Last Five Years?
• Is Asia Pacific Becoming A Significant Segment For AB InBev?
• Why Asia Pacific Revenue Is Estimated To Grow By 3x The Net Sales For AB InBev Through 2020

Notes:

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1. AB InBev-SABMiller investor presentation [↩]
2. Coca Cola buys African bottling from AB InBev for $3.15 billion [↩]