What Does a Miller-Budweiser Merger Mean for the Future of Craft Beer?

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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 obtain any regulatory clearances required before the transaction. This included $3 billion payable to SABMiller in the event that the transaction fails to close as a result of the failure to obtain regulatory clearances or the approval of AB InBev shareholders.

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 their highly differentiated cask ales also continue to make progress. As a consequence, cost, product, and distribution rationalization become an attractive way of increasing shareholder returns. That is provided AB InBev does not pay too much for SABMiller."

Would this potential megaconglomerateaffect beer drinkers? John Linn, brand manager for Funky Buddha, thinks the merger is a sign of the way the beer industry is moving.

"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, acquisition is the new model."

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 superbrewers can't."

And it is that pesky, rapidly expanding craft-beer market that might mean this merger ends up being much ado about nothing.

From Investopedia:

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 macrobreweries into a megamacrobrewery is a bit of a counterproductive strategy. So, while the big boys consume each other by hiring expensive attorneys, the best bet for the local beer enthusiast is to continue to support local breweries.

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