Why do you think ABI-Inbev proposed to acquire SABMiller? What benefit is expected from the acquisition?
InBev aims to change the beer industry by acquiring SABMiller as the two firms are among the top firms in the beer industry thus becoming the largest brewer worldwide. This acquisition is one of InBev’s strategic moves to expand in new markets and strengthen its operations in the existing markets. One of the benefits of the acquisition of SABMiller is that InBev will gain from economies of scale as its operations will extend to worldwide beer markets (Bray, 2016). It will also have increased brand awareness to consumers thus providing consumers in various markets with a different variety of brands to choose and satisfy their needs (Bray, 2016). InBev will also increase its product acceptance in the global market as it will already have established market thus facilitating marketing and sales resulting in increased profitability.
The acquisition also reduces the barriers to enter new markets since the companies do not need to conduct thorough market research to identify possible channels of market entry. It might even take many years for a company to build a sufficient client base; thus the acquisition reduces the need to position the product in the new markets (Bray, 2016). InBev will have the opportunity to develop more brewery plants in Asia and Latin America as well as expand its markets in Africa (Trefis, 2015). The global expansion will, therefore, make InBev attain the market leadership position. Another benefit gained from the acquisition of the new company is pooling of resources to lower the cost of production thus increasing the economies of scale and improving the financial outlook of the company in the long run.
Why would ABI-Inbev agree to sell certain assets/brands to other firms, e.g., their 59 percent stake in MillerCoors? What other challenges does the firm have in this merger deal?
The total amount of revenue generated in by SABMiller is inclusive of the shares of the associates, revenue of the joint venture such as the Miller Coors in the U.S. and CR Snow in China (Bray, 2016). InBev might sell specific assets in China and the U.S as a result of antitrust issues. The Antitrust laws discourage the increased concentration of large companies through mergers and acquisition and acquisition transactions (Scott Morton & Hovenkamp, 2017). If there is proof that the size of InBev could harm small businesses, then there might need to sell some assets. One of the applicable antitrust law is the Clayton Act which enables the government to prevent any form of monopoly from developing in the market (Scott Morton & Hovenkamp, 2017). If the acquisition results in a reduction of the competition in the industry, then it is illegal for the company to purchase another company’s stock. Therefore, InBev could sell some of its assets in the most competitive beer markets in the world.
The challenge would be the resulting conflict between SABMiller and InBev in their partnerships. SABMiller partners with Coca-Cola in Latin America while InBev has bottling and distribution contract with PepsiCo in the same region (Trefis, 2015). Coca-Cola and PepsiCo are rivals in the drinks and beverage industry. Therefore, the two leading beer companies might not form an agreement on how to operate as well as estimate the annual sales and revenues. InBev benefits more from the merger than SABMiller since SABMiller have established markets South America and Africa in almost 15 countries (Trefis, 2015). However, InBev has no market in Africa; therefore, SABMiller gives InBev the opportunity to penetrate African markets.
How will the merger affect the U.S. beer industry? How should competitors, e.g., Molson Coors respond?
The merger between the two large beer brewers could result in the expansion of InBev’s operations in Africa. However, the merger also affects the U.S beer industry. It is possible that the sales of beer in Latin America could increase. InBev dominates several competitive beer markets in South America such as Mexico, Brazil, and Argentina (Trefis, 2015). The acquisition of SABMiller could, therefore, enhance InBev’s presences in other countries like Peru and Colombia as it gets a strategic market position of the Miller Light brand thus increasing the total revenue per unit volume in the U.S. The increase in disposable income in the U.S results to increased consumption of premium beer. The introduction of SABMiller in Latin America could also contribute to increased sales volume in the U.S beer industry.
Therefore the merger not only leads to increased sales volume but also lead to faster growth of InBev’s premium beer in the U.S beer industry, therefore achieving its market growth strategies. Latin America is a suitable and the most profitable region for producing beer since it has available labor and raw materials thus gives the brewers the opportunity to produce high-quality beer at reduced costs while enjoying the benefits of economies of scale (Trefis, 2015). Latin America also provides a ready market for beer. Therefore production that takes place near the end market reduces the transportation and distribution cost consequently resulting in increased revenues in the beer industry.
InBev’s main competitor is Molson Coors, and it also strives to maintain its competitive advantage in the beer markets, therefore need to respond to the merger. It is essential for the company to have a simple decision-making process and minimize the complexities that occur as a result of dual ownership (Shoup, 2016). The company needs to integrate its operations to achieve its efficiency in the beer industry thus becoming more competitive as independent business owners than if Molson Coors was to form the partnership with other companies. The company should also focus on promoting its brand among consumers and attain the brand position in the competitive beer market. Malson Coors should go ahead and seal the deal of acquiring Terrapin Beer Company to expand the craft beer portfolio as it also includes Saint Archer Brewing Company, and Blue Moon Brewing Company (Shoup, 2016). Molson Coors will, therefore, have a broad customer base thus increasing its sales and revenue and attaining a strategic market position. Besides Terrapin Beer Company has a variety of beer brands that satisfy the various needs of consumers.
Bray C. (2016) Shareholders Approve SABMiller Takeover by Anheuser-Busch InBev. Retrieved on March 23, 2019, from https://www.nytimes.com/2016/09/29/business/dealbook/sabmiller-anheuser-busch-inbev-beer-merger.html
Scott Morton, F., & Hovenkamp, H. (2017). Horizontal shareholding and antitrust policy. Yale LJ, 127, 2026.
Shoup. E.M. (2016). Molson Coors Responds to US decision on AB InBev & SABMiller deal. Retrieved on March 23, 2019, from https://www.beveragedaily.com/Article/2016/07/21/Molson-Coors-welcomes-US-decision-on-AB-InBev-SABMiller-deal
Trefis (2015). AB InBev and SABMiller To Join Forces? Retrieved on March 23, 2019, from https://www.trefis.com/stock/bud/articles/313902/ab-inbev-and-sabmiller-to-join-forces/2015-09-17