Aug 022016

AmericaIn the popular movie often played on many cable channels, Heartbreak Ridge, Clint Eastwood plays marine Sargent Tom Highway, who has been in the service for decades.  There is a line Eastwood refers to regarding his win/loss record as a soldier:  “No wins, one loss, and one tie.”

Prior to 2008, one can argue that AB’s win/loss record was spotless.  It seemed that everything AB touched resulted in a home run.  All wins, no losses.  Let’s look at AB’s win/loss record since 2008 when they were purchased by InBev.  How does that win/loss record look since that year?  More losses than wins?

As of today we know that SABMiller will soon be rolled into ABI.  In the past week China’s regulators have approved the merger which was the final regulatory precondition.  Prior to China’s decision, in a classic study of the game of chicken, SABMiller’s board recommended that it’s shareholders accept ABI’s final offer.  This final offer had been increased to L45 a share, up from L44 a share.

Per the Wall Street Journal:   “The drop of the British pound by more than 10% against the dollar drove the value of ABI’s cash offer to SABMiller well below its alternative cash-and-share offer because ABI shares are priced in euros. Initially, the cash offer was designed to be a premium.”  ABI had increased the offer by $2 billion to head off any game of chicken.

Both ABI and SABMiller need this merger to happen.  While senior management at ABI may look at their record and see an unbeaten one, their performance is certainly not coming up roses.  Second quarter profit dropped $1.77 billion, which was tied to a currency hedge.  According to the WSJ, ABI is spending an estimated $450 million a quarter in interest on debt to finance the deal.

It is no surprise that this merger is going to happen.  SABMiller’s performance has been weak and this offer is a premium to the share holders.  Neither SABMiller or ABI could risk losing this merger.  There is no doubt that once this merger closes, ABI will chalk it up as another win.  This score card , however, might be graded differently if the question was directed to an ABI US distributor who has lost market share and volume.  Much has changed for ABI distributors and employees since 2008.

ABI’s recent seasonal promotion, American, which uses their packaging to celebrate summer and the Olympics, initially created a buzz across all media lines.  Now, however, AB’s numbers illustrate that the renaming has not positively affected Budweiser’s sales as was hoped.  Another loss?

First it was AB, than Modelo, now SABMiller. All have been acquired by InBev, along with a number of smaller crafts and some AB US distributors.  Expect more to follow no matter what their agreement with the DOJ states they can do or cannot do.  It might just not happen as quickly as ABI would like.

At the end of the movie, HeartBreak Ridge, Highway has acquired a win. He now states he is “one win, one loss, and one tie.”  The US beer industry will keep score on ABI after this merger, but do not kid yourself.  ABI will continue its assault on the US market.

The essence of strategy is you must set limits on what you are trying to achieve…

Beer Fodder:




 Posted by at 6:00 am

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