Budwiser seeks to buy Miller

If 2 bad beers merge, would that make the beer better or worse?

Beer Merger Could Create One of the Widest Consumer Staples’ Moats
By Philip Gorham, CFA, FRM | 09-16-15 | 06:20 AM | Email Article
SABMiller (SBMRY) and Anheuser-Busch (BUD) today revealed that A-B InBev has approached SABMiller’s board of directors regarding a proposed bid. SAB’s London-traded stock surged 20% immediately following the news, while A-B InBev rallied 7%. We think the combination of ABI and SAB would create a very powerful business that, based on cost advantage, would possess one of the widest moats in the consumer staples space. We are reiterating our GBX 3,600 and $55 fair value estimates for SAB’s ordinary shares and ADRs respectively, as well as our EUR 112 and $126 valuation of A-B InBev’s local shares and ADRs, until more is known about the likelihood and terms of a deal.
We are unsurprised by the timing of this announcement. Although rumours of the deal have been rife for several quarters, we always saw valuation as the barrier to execution. A-B InBev’s management have demonstrated strict financial discipline in previous deals, and we believe they were waiting for a more attractive valuation of SABMiller before making their move. For that reason, we would be surprised if the eventual acquisition price exceeded GBX 4,000 per share, assuming $1 billion in annual cost savings. This would value SABMiller at around 15 times fiscal 2017 EV/EBITDA, slightly above historical transaction valuation in the beer industry. The deal is likely to be at least 40% financed by stock, in order to allow major shareholders Altria and the Santo Domingo family to retain an economic interest in the brewing industry.
A combined “SAB InBev” entity would generate annual volumes in the order of 780 million hectolitres of beverages, over 4 times the 181 million hectolitres sold by Heineken (HEINY) in 2014. Brewing is an industry in which economies of scale are easily generated because the manufacturing and distribution process is largely homogeneous across segments and brands. Scale of this size, particularly on A-B InBev’s global procurement platform, is likely to create a cost advantage that no competitor can match.
Philip Gorham, CFA, FRM is a Senior Equity Analyst for Morningstar, Inc. He has been covering the consumer sector at both Morningstar and at Federated Investors since 2008.

I don’t think it impacts the craft brewing community much. This just allows more production, merging of already industrial facilities and save Budweiser more money in their production of their water with wheat.

But these 2 have already snapped up a few craft brewers. Does this give them additional money to pursue additional purchases once they realize the savings from overlapping work systems? I see them throwing even higher dollars to go after some of the top dog craft brewers. That is the only growing beer segment of any consequence.

Maybe not the US regulators, but the Euro anti-trust people will likely be all over this deal if it happens.

let them snap up more craft brewers. They haven’t run any into the ground, they’ve let them all do what they want to do and leverage their vast resources to help them. Bud has done nothing but good things with Goose Island

That is going to happen anyway. And I’ve argued that its not necessarily a bad thing. As I sad in the Lagunitas thread, or rather as I opined on the thoughts of the Lagunitas owner who just sold half of his company, it makes sense to want to reach a much broader market at some point. If these brands falter there will tend to be someone else willing to step into their place.

I agree with that Charlie but a lot of people here feel otherwise.