In a deal that CNN Money calls the biggest beer deal ever, the two biggest beer companies in the world have stepped closer together, when they announced they have agreed to a merger — in principle.
Under the agreement, AB InBev would buy SABMiller shares at GBP 44 per share ($67.60) in an all-cash offer, which represents a premium of about 50 percent to SABMiller's share price on September 14. In addition, SABMiller shareholders would be entitled to dividends as part of the terms. This preliminary deal is good through October 28, at which time, AB InBev must put a formal offer on the table.
A release issued by AB InBev confirmed the company would agree to a "best efforts" commitment to
AB InBev's portfolio includes Budweiser, Corona, Beck's, and Stella Artois. SABMiller's beer stable includes Miler, Keystone, Foster's, Strongbow, and many regional brands. Combined, the two companies would be the world's largest beer provider, with Reuters valuing the result of the marriage at around $104 billion.
According to Professor John Colley of Warwick Business School in Coventry, England, all is not perfect in the kingdom of beer.
"AB InBev's determination to do this deal may ultimately be a problem for them. Adviser fees will run to hundreds of millions of pounds, much of which will be success-based. How much impartial advice do you get when the stakes are so high? Management will expect to benefit as they will preside over a much greater business resulting in greater pay, power, and status. Customers are unlikely to benefit, and shareholders' ultimate prospects are distinctly risky.
"The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate. Micro-brewers and
Would this potential
"It's a monumental deal, no doubt, and if it does get approved by regulators, it will give the new company an unprecedented amount of power over the market. The overall beer industry continues to shrink, and as we've seen over the past year,
The good news is that Linn sees this as a potentially positive sign for small craft breweries.
"I don't think it changes the core story of craft beer, though, which is people are demanding more choice, flavor, and innovation of their beers, and independent craft brewers are continuing to meet that demand in a way that these global
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And it is that pesky, rapidly expanding
Here’s the problem. Even if everything goes according to plan and this new company is formed, it’s going to lead to pricing power. In most cases, pricing power is a positive because it allows the company selling its products or services to raise prices without losing customers. In this case, despite the real growth potential being in emerging and developing markets, the majority of sales will still be seen in developed markets, and consumers in developed markets are hesitant. But it’s not just that. Many of these same consumers are more interested in craft beer. If prices are raised for brands like Budweiser, Corona and Miller Genuine Draft, then unique craft beers will become even more enticing to consumers.
In other words, if what consumers want is creative, hand-made craft beer from microbreweries, merging