SABMiller: a parting view

As AB-InBev and SABMiller hammer out the final terms of their deal and the beer industry catches its breath from Tuesday’s ground-breaking USD 104 billion offer, it’s time to congratulate SABMiller’s feisty Chairman Jan du Plessis on a job well-done. He managed to squeeze as much out of AB-InBev as was possible.

SABMiller, in case it needs pointing out again, has an excellent record and could have continued on its own, had its major shareholders not succumbed to the lure of money. SABMiller, says The Guardian, is not a Cadbury Schweppes, struggling to defend its chequered returns when Kraft came calling in 2009. It is the world’s number two brewer and has only enriched its shareholders during its 16 years on the London stock market. It did not need a saviour.

Therefore, the ultimate demise of SABMiller is not down to a poorly executed strategy but to fate. SABMiller will be taken over because it has always been a sitting target.

The price it paid for its rapid expansion from a second tier brewer to the world’s number two was that it was never home alone. Lacking the funds to pay for its acquisitions in cash, it had to take the cigarette maker Altria and the Colombian Santo Domingo family on board as shareholders. For Altria, the stake in SABMiller was no more than a financial investment. Altria was not in it for the love of beer or any other altruistic motive but for the annual golden showers in the form of dividends.

It’s not surprising, given the circumstances, that SABMiller’s major shareholders decided to jump ship when AB-InBev came along and the opportunity offered itself. This is what investors do. They would be stupid to turn down a good deal.

That AB-InBev came calling now and not before is partly down to low interest rates. It is cheap to borrow to finance deals. The other reason – something AB-InBev did not say out loud – is that the environment for growth in the business world is also tough, so buying a rival from which costs can be axed is an easier way to generate returns.

No one can deny that SABMiller has been running a tight ship. Its original, and at the time, dare-devilish plan to enter emerging markets where it would enjoy market leadership and would encounter little if any competition proved farsighted. This is how you got a headstart in the game called globalisation. If today AB-InBev and SABMiller have hardly any geographical overlap, it’s because they knew before their competitors that the globalisation of the brewing industry will be all about grabbing and protecting monopolies.

Market observers agree that SABMiller is worth every penny AB-InBev will have to fork out for it. After all, the prize for the Brazilians is SABMiller’s big presence in emerging markets, especially Africa. At the moment those areas are in the doldrums as The Sunday Times recently commented, but they are where future growth will come.

Many of SABMiller’s 70,000 employees will fear the day when AB-InBev will finally take over. Of course, as has been remarked, 1,700 top managers at brewer SABMiller sit on share schemes which are worth in excess of USD 1.8 billion in total and they are in line for handsome payouts. But AB-InBev is a famously ruthless cost-cutter that doesn’t mess about with people, small brands and breweries. Once AB-InBev is in charge, none of the aforementioned will be safe. SABMiller estimated that it could make its operations more efficient by taking USD 1.05 billion out in costs by 2020. This looks like a big number. However, the new owner will seek at least twice that sum across its enlarged business.

Now, who will benefit from the takeover of SABMiller apart from its shareholders? Not the consumers, it is to be feared.

Several commentators were chuckling to themselves when AB-InBev’s CEO Carlos Brito said last week that the proposed combination would lead to “more choice for consumers”. This seems a highly unlikely proposition. So Brito tried to explain. “As an example, since our combination with Anheuser-Busch, we have successfully grown Budweiser globally, with international sales now accounting for over half of total volume,” he said.

It follows that for AB-InBev “more choice” means more Budweiser in more markets around the world.

The Guardian commentator concluded: “This is a depressing vision. Americans know that Budweiser is as bland as mass-market lagers get: they are drinking it less and turning to craft beers.”

Lucky are those consumers that are based in countries where there is competition and hence choice. But what about the consumers in the 24 out of the 30 major beer markets where MegaBrew will have top or second slot? More choice? Not a chance, sneers The Guardian.

How about cheaper beer then? Don’t hold your breath, jeered The Guardian. Brito didn’t even mention pricing in his consumer pitch. Considering that AB-InBev will be sitting on a huge debt pile after the SABMiller takeover, price cuts will be out of the question.

Unfortunately, there is nothing standing in the way of this “joyless takeover” as MegaBrew was dubbed by The Guardian. That’s open markets for you. At some stage, all quoted companies are for sale by their shareholders. What’s more, beer is not a strategic industry, which would bring governments out in arms to defend it.

“This entire adventure … [shows] why the debt-fuelled takeover culture, breeding corporate goliaths, eats away at consumers’ trust in big business. … In independent form, SABMiller would [have] continued to flourish because it can look forward to decades of growth in Africa. It [would have] deserved a better fate than being thrown under the Budweiser steamroller for the sake of a few more quid on the bid price. Drink responsibly, drink something else,” says The Guardian.

I wonder how many consumers will heed this advice?