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McClatchy-Tribune  07/12/2014 11:59 PM ET
Is A-B InBev brewing the next big deal? [St. Louis Post-Dispatch :: ]

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July 12--InBev's $52 billion purchase of Anheuser-Busch Cos., announced six years ago this weekend, remains the biggest deal in beer history.

But there's another merger of brewers that could eclipse it.

A number of industry analysts say they have reason to believe that A-B InBev could be preparing another blockbuster purchase by acquiring rival SABMiller, the world's No. 2 beer company.

Rumors of a tie-up between Belgium-based A-B InBev, already the world's largest brewer, and London-based SABMiller have been around for years, but talk of a deal between the two is heating up.

"I think that we've come to a break point, a decision point," said Tom Pirko, president of Bevmark, a food and beverage industry consulting firm in Buellton, Calif. "I think that we're close now."

Speculation was already brewing when the Financial Times, or FT, Britain's equivalent of the Wall Street Journal, reported in early June that traders believed bankers were working to raise $60 billion in debt to fund some kind of European takeover, and that SABMiller was a possible target.

"The chatter has intensified," said Harry Schuhmacher, publisher of Beer Business Daily, a trade publication.

He noted that the FT broke the news six years ago about InBev's takeover plans for A-B. Though the newspaper has yet to write a story confirming that a deal is indeed in the works, Schuhmacher drew parallels between the 2008 sale and the current flurry of speculation.

"It's like 'Groundhog Day'," he said. "When there's smoke, there's usually fire."

Robert Ottenstein, a senior managing director at New York-based research firm ISI and head of its global beverages team, believes a combination between the makers of Budweiser and Miller Lite could happen this year or 2015.

"More than at any point in the last 10 years, SABMiller appears ripe for a combination with ABI," Ottenstein wrote in a May research note, adding A-B InBev has digested its 2013 $20.1 billion acquisition of Mexican brewer Grupo Modelo, with most cost-savings expected to be realized by the end of this year.

For Ottenstein, a former investment banker who headed investor relations for A-B InBev after A-B's sale, the deal is compelling.

A combination of the two companies would bring together eight of the 10 leading global beer brands: A-B InBev's Bud Light, Budweiser, Corona Extra, Skol, Stella Artois, and Brahma; and SABMiller's Aguila and Miller Lite.

The only top-10 global beers not under their control are Heineken and Guinness.

Combined, A-B InBev and SABMiller would account for about $65 billion in sales and nearly 30 percent of global beer volume.

Ottenstein contends A-B InBev's strong global brands would pair well with SABMiller's extensive global footprint. A-B InBev has invested heavily in building flagship Budweiser's sales globally following its purchase of A-B, he pointed out in the May report.

In 2010, Budweiser grew its global sales volume by 1.7 percent, even as its U.S. sales declined. Budweiser has continued its sales momentum globally, increasing volume by 6.3 percent in 2013, with sales in China, Brazil and Russia, among other major markets.

Meanwhile, SABMiller's market position is strong in regions with high growth potential, including Africa and China.

"The potential to introduce (A-B InBev's) global brands to SABMiller's regions extends their growth and margin potential," according to Ottenstein's report.

Additionally, A-B InBev could reap $2 billion in cost-savings through an acquisition of their largest rival, through global procurement and shared services, and eliminating job redundancies, he wrote.

Successfully implementing those kinds of cost-saving measures is what A-B InBev Chief Executive Carlos Brito and his management team are known for.


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