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Posted October 2020

AB-InBev in choppy waters

MegaBrew ǀ In October 2015, the globalisation of the brewing industry drew to a close. The long-awaited takeover of SABMiller by AB-InBev, dubbed MegaBrew, was to render AB-InBev the unassailable leader in the race to global domination. However, five years on, AB-InBev finds itself in an unenviable position. Burdened with debt, it can no longer rely on deals to boost its growth.

Quite why anyone should want to seek global domination of the alcoholic fizzy drinks market is a question whose answer was obvious only to the army of bankers, lawyers and PR consultants, who stood to gain up to USD 235 million in fees after AB-InBev spent an eye-watering USD 108 billion to buy SABMiller.

The rest of the world was probably too keen on a satisfactory closure to the MegaBrew saga, which had dragged on for seven years – ever since InBev bought US brewer Anheuser-Busch in 2008 and every armchair strategist predicted that AB-InBev would go after SABMiller next to seize the crown.

The narrative of the globalisation of the brewing industry and AB-InBev’s role in the drama as the odds-defying protagonist was so intriguing that no one stopped to ask: “Wait a minute, what is the point of this deal? Shall AB-InBev henceforth sit on a mountain of debt and engage in the humdrum task of doing business by the book? Are they really done with dealmaking? That cannot be their plan for the future. Or is it?”

In fact, AB-InBev spent far more than the widely quoted USD 108 billion to reign over the brewing world. By its own admission SABMiller’s enterprise value came to USD 122 billion if you include SABMiller’s net debt of USD 10 billion and a few bits and bobs.

It took AB-InBev almost a year to bed down the SABMiller transaction. At the end of September 2016, SABMiller was delisted from the stock markets and ceased to exist as a legal entity. What bothered us in that long year was that so-called pundits already speculated which company AB-InBev would take over next. There was a long list of potential targets: Coca-Cola, PepsiCo, Efes, Diageo’s beer business, Castel in Africa ... and perhaps a few more.

The musings went that in the USD 36 billion global beer profit pool (measured in EBIT) only about USD 8 billion were held by smaller competitors, some of which might be willing to surrender to that mighty takeover machine, provided they were made an offer they couldn’t refuse. Snapping them up one by one would be like a walk in the park. After all, MegaBrew, at this stage, controlled more than half of the profit pool. In those heady days, there was strong agreement among the usual commentators that nothing could prevent AB-InBev from going after them. Those who pointed out that AB-InBev would need a lot of money to continue clinching deals – Castel’s Africa business alone was valued at over USD 20 billion – were brushed off as talking piffle. For as long as AB-InBev could persuade the moneybags to underwrite them, its rising debt was no one’s concern.

Catch me if you can

What should have stopped those deal fantasies from running wild is that the world’s number one brewer spent 2016 unravelling the old SABMiller little by little.

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