tag:theconversation.com,2011:/fr/topics/sabmiller-1271/articlesSABMiller – The Conversation2017-06-18T09:23:12Ztag:theconversation.com,2011:article/782042017-06-18T09:23:12Z2017-06-18T09:23:12ZHow a South African company turned constraints into global strengths<figure><img src="https://images.theconversation.com/files/173804/original/file-20170614-21910-1d1355i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">SAB’s resilience has allowed it to become a key player globally.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>On 28 September 2016, the shareholders of South African born international brewer, SABMiller, approved the company’s <a href="https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/taranurin/2016/10/10/its-final-ab-inbev-closes-on-deal-to-buy-sabmiller/&refURL=https://www.google.co.za/&referrer=https://www.google.co.za/">acquisition</a> by Anheuser-Busch InBev for $104 billion (R1.5 trillion). The deal paved the way for the creation of what is now by far the world’s <a href="http://www.ab-inbev.co.uk/about/about-abinbev/">largest</a> brewing company.</p>
<p>For a company that started out selling beer to miners in Johannesburg during the gold rush of the late 1800s, it’s been quite a journey. But how did a brewing company from a developing country rise to compete with the multinational brewing behemoths from the developed world?</p>
<p>A series of <a href="http://onlinelibrary.wiley.com/doi/10.1002/gsj.1143/full">interviews</a> with senior executives and managers who presided over the growth of what was then South African Breweries’ (SAB) rapid expansion during and after the 1990s are revealing. After building up a monopoly-like position in the beer market in South Africa, the company went in search of new markets. It used its experience in South Africa in its entry strategies abroad.</p>
<p>SAB’s path reflects the differences between multinationals from developed and emerging markets in terms of location choices, sequencing, time horizons and motivation.</p>
<p>A two-phased expansion path emerges to explain the remarkable success story. The first pillar to SAB’s international expansion was a focus on developing markets. Coming from a developing country itself, the company would cope better with emerging market conditions than brewers from the developed world. These ventures became a powerful base for SAB to take on developed markets. </p>
<p>The second was to expand into developed countries. This became necessary as it became clear the company was over exposed to emerging markets.</p>
<h2>The first phase of expansion</h2>
<p>After a few early forays into South Africa’s neighbouring countries prior to 1993, SAB executives realised that the company could exploit its knowledge of institutional shortcomings in its home country. It would use this experience to adapt more easily than its competitors to conditions in developing countries. </p>
<p>And so began the first part of its internationalisation strategy: a rapid expansion into emerging markets worldwide.</p>
<p>Through a series of acquisitions and joint ventures throughout the 1990s, SAB gained a foothold in various countries in Africa, Eastern Europe and Asia. Although many were geographically distant (like Hungary, Czech Republic, China and India), they echoed South Africa in terms of their socioeconomic development. Eastern Europe, for example, was still emerging from political reform in the wake of communism, and infrastructural, institutional and economic weaknesses persisted.</p>
<p>By expanding into countries that shared socioeconomic characteristics with South Africa, SAB was able to make use of its experience to turn a perceived drawback – institutional weakness – into a strength. As one respondent explained:</p>
<blockquote>
<p>To be quite frank, we actually accepted that we would live with the political risk and poor institutions. We didn’t really shy away from high-risk countries unless, of course, there was a raging civil war that we would have to wait to subside.</p>
</blockquote>
<p>Once it had established this expansion plan, SAB diversified into developed markets such as Italy and the US. As one interviewee put it: </p>
<blockquote>
<p>Investors became sceptical of companies whose only business was in emerging markets. </p>
</blockquote>
<p>In 2002 it took a step closer to consolidating its position as a multinational brewing giant when it acquired <a href="http://money.cnn.com/2002/05/30/news/deals/miller_sab/">US-based Miller Brewing Company</a>. It became SABMiller.</p>
<h2>Turning weakness into strength</h2>
<p>The advantages that SAB gained from its experience in its home country are many. One was employee aptitude. </p>
<p>SAB employees had built up an extraordinary resilience, flexibility and entrepreneurial spirit through their exposure to the unsteady South African environment of the 1980s. As one executive said:</p>
<blockquote>
<p>They survived labour trouble, survived interest rates at 25%, inflation at 16% to 17%, survived political disorder, political violence… That toughened you, toughened us.</p>
</blockquote>
<p>This robustness, combined with an ability to connect with many different cultures, gave the company a valuable flexibility in its risk, location and investment choices.</p>
<p>Another strength was its ability to turn around neglected breweries and businesses. The experience it gained in South Africa, with its large rural population and pockets of poor infrastructure, meant that finding innovative ways to overcome challenges was embedded in the company’s DNA. </p>
<p>Another advantage the company gained was brand development and marketing ability. SAB was developed into a major operation without reliance on strong, globally-recognised brands. Using its home experience the company took brands it acquired in distant countries and built them into powerful national brands.</p>
<p>These became a base from which it launched into premium brands such as Grolsch and Peroni through acquisitions. This offset being over-invested in domestic brands.</p>
<p>SAB also had a philosophical edge over many competitors. It’s risk appetite was much bigger. By comparison a company like <a href="http://www.ab-inbev.com/investors/results-center/quarterly-reports.html">Anheuser-Busch </a> had a conservative approach to risk and international expansion. </p>
<p>For example, Anheuser-Busch didn’t react to the rapidly changing global brewer consolidation until it was too late. And when it did, it realised that it had little emerging market experience. </p>
<p>This weakness meant that in 2008 Anheuser-Busch was unable to avoid a <a href="http://www.nytimes.com/2008/07/14/business/worldbusiness/14beer.html">hostile takeover by InBev</a>. This gave rise to AB Inbev, then the world’s largest brewer. AB Inbev, in turn, was compelled to make an offer for SABMiller to acquire complementary emerging market presence.</p>
<p>SABMiller’s long journey from the mine heaps of Johannesburg to global brewing colossus may appear to have come to an abrupt end after its acquisition by Anheuser-Busch InbevAB Inbev in 2016. But what’s clear is that its extraordinarily successful approach continues to hold many lessons for aspiring global companies from the developing world.</p>
<p>_This piece was adapted from an academic <a href="http://onlinelibrary.wiley.com/doi/10.1002/gsj.1143/full">article</a> by John Luiz, Dustin Stringfellow and Anthea Jefthas that first appeared in the February 2017 issue of Global Strategy Journal, Volume 7, Issue 1 (83-103).
_</p><img src="https://counter.theconversation.com/content/78204/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Luiz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The development trajectory of South African born brewer SABMiller peaked with the 2016 $104 billion merger with Anheuser-Busch InBev. Behind it lies an extraordinary journey.John Luiz, Professor of International Business Strategy & Emerging Markets, Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/689562016-11-23T10:08:53Z2016-11-23T10:08:53ZThe weaker pound is a mixed bag for UK PLC as rivals move to adapt<figure><img src="https://images.theconversation.com/files/146728/original/image-20161121-4544-lumu2r.jpg?ixlib=rb-1.1.0&rect=59%2C79%2C940%2C573&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-323763059/stock-photo-one-pound-coin-on-fluctuating-graph-rate-of-the-pound-sterling-shallow-dof.html?src=Dckjtmb8uQZwgIgJw27Gzw-2-84">Valeri Potapova/Shutterstock</a></span></figcaption></figure><p>The value of the pound plummeted after the Brexit referendum. From close to US$1.50 before the vote to leave the European Union, sterling has now found a new <a href="http://www.xe.com/currencycharts/?from=GBP&to=USD&view=1Y">level close to US$1.20</a>. This has been greeted as a welcome boost to UK exporters as it makes it cheaper for other countries to buy British goods. But this is a simplistic take. The reality is far more complicated and dependent on the markets in which these companies operate. </p>
<p>The <a href="http://www.thisismoney.co.uk/money/markets/article-3701788/What-sterling-s-slump-means-UK-s-economy-businesses-households.html">conventional wisdom</a> about a falling currency and exports fails to acknowledge some fundamental points. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2843755">Our research</a> highlights that such analysis typically does not account for the existence and nature of a company’s competition, domestically and overseas. </p>
<p>In other words, nimble corporate rivals can quickly adapt to counter any potential gains from currency effects, and that applies to UK-focused firms as well as exporters. Let’s take an example from one of Britain’s favourite pastimes: beer. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/146782/original/image-20161121-4564-1qxeamg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The tippling point?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/andywilkes/2481933944/in/photolist-4Mjyuy-6EsBky-2VK1Gm-GaA8f-9dSq2a-CXuzn-DDA12-iEwMm-39hwn6-5LMGRC-iEwKW-5RdGNR-3bmBpQ-4MjyBu-6DwLz5-6C68Ec-6Cagi5-8CaK7-2rbhJ-4MfoYz-6DwLif-BF7jy-9cYLym-397iC-98aXMm-6ffCew-6DsBHr-25pc5-24F2K-4TLWV-twRQ-9hvmws-H1eo-6DsBPB-2kd9y-ikoK-wTsuK-kSgo-rRHh-mvTQ-4oz3N-VU1U-4xRqce-twMg-o1Be-QuMp-mvVz-mvSF-hE3b-vSpd">Andy Wilkes/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Losing its fizz</h2>
<p>Our research studied data from 22 multinational firms and nine markets. One such firm was the brewer SABMiller, a British exporter, which competes in an <a href="http://www.economist.com/node/18651308">international duopoly</a> with Belgian group AB-InBev, the maker of beer brands such as Budweiser, Corona and Stella Artois. We looked at a period before the companies agreed a merger which was <a href="http://www.wsj.com/articles/sabmiller-ab-inbev-shareholders-approve-100-billion-plus-merger-1475059015">approved by shareholders in September</a>. </p>
<p>Now, under conditions of a falling pound, SABMiller would in theory enjoy an increase in its profits as foreign buyers snapped up products now markedly cheaper in their home currency. However, that assumes that its Belgian rival failed to cut its own product prices by what was required to offset the change in the GBP/EUR exchange rate. If AB-InBev is on the ball, and sensitive to exchange rate changes it can very easily decide to cut its product price by more than the increase in the exchange rate. In that scenario, the profits of SABMiller could fall.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/146783/original/image-20161121-4544-1u86zzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Muscling in?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/waltermera182/9514909861/in/photolist-bAE4RS-5k6Nad-9riTv7-5bdRpv-e6vzgM-84dYoJ-7ACBYj-8aT42e-88Gjd3-55QM1h-dHvgA-8fNbuC-dihQkj-4s7jic-dHvyK-8vt2aY-cvd7kS-dHvBH-59aMyo-6mdG3n-7mp44V-4bmT2C-25cRBJ-25cRRo-4bUN7Z-fv3EB7-4CPbKB-aS9xQt-fuNpd2-7UM9wi-ewBZ1s-38hDMs-8c8Pu6-s49Nv-EYo9vC">Walter Gustavo MERA MELO/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Then, what if you have to factor in a third competitor, such as the Netherlands-based Heineken, which shares the same currency as AB-InBev? This means that the exposure of SABMiller will also be affected by Heineken’s change in its product price in response to the exchange rate fluctuation of the euro relative to the pound. The picture here becomes more complex because the degree to which foreign competitors will change their product prices will also depend on the degree of competition between them in their own home markets. It will also depend on their desire to curb product prices in any attempt to offset a boost to the competitiveness of the UK firm; how much margin they are willing to sacrifice in order to stay competitive. </p>
<p>If our UK brewer also faces a domestic competitor then the picture becomes even more complex. SABMiller’s profits would also be affected by the pricing decisions of that local rival in response to changes in the exchange rate.</p>
<p>In short, these are far muddier waters than some would have you believe. The profits of UK-based exporters might enjoy a brief window of opportunity if rivals are slow to adapt, but earnings could just as easily take a hit from a rapidly changing environment as a sector gets used to new realities. Our conclusions don’t only apply to British exporters. It is the same for any multinational firms which face competitors at the international and local level. The sports market is another good example, with its <a href="http://www.economist.com/blogs/graphicdetail/2013/08/daily-chart-14">international oligopoly</a> of US firm Nike, the global leader, and two German firms, Adidas and Puma.</p>
<h2>Kindness</h2>
<p>It is clear the argument that a weakened currency makes domestic exporters better off is not necessarily true. Whether or not a fall in the currency is a good thing for an industry depends on the market structure, and specifically on the size of the price sensitivities with respect to exchange rates of their international competitors.</p>
<p>When <a href="https://www.theguardian.com/business/2016/jan/26/mark-carney-fails-to-rule-out-eight-year-term-at-bank-of-england">Mark Carney</a>, the governor of the Bank of England, said, that Britain “depends on the kindness of strangers”, he had in mind UK’s heavy current account deficit. We argue that British exporters also “depend on the kindness of rivals”. </p>
<p>There is a clear link between the ability of a firm to pass on the exchange rate changes to its customers and the magnitude of their exposure to rival firms operating in the same market, both domestically and overseas. In our example of the beer market, the ability of AB-InBev to pass on the increase in the euro to the price of its beer affects the profits of SABMiller. The higher the former is, the lower the profits of SABMiller will be. This clearly depends on how loyal (i.e. non-price sensitive) the consumers of the Belgian brewer and SABMiller are. </p>
<p>Our theoretical and empirical results suggest that a falling currency is not always good for exporters. If the companies ignore these complex relationships between firms’ price setting behaviour, profits and exchange rates, mistakes are more likely and sometimes these will benefit the exporters of the appreciating country at the expense of the firms in the depreciating country. </p>
<p>The idiosyncrasies of each market, and the price sensitivity of consumers, will play a significant role in determining whether a devaluation will be beneficial for the exporters of a country. Simplistic arguments that a weakened pound is good for British exporters fail to take these into account.</p><img src="https://counter.theconversation.com/content/68956/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>All the talk about a golden time for UK exporters forgets one crucial point.Xeni Dassiou, Reader in Economics, City, University of LondonAthanasios Andrikopoulos, Lecturer in Finance, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/479082015-09-29T08:40:56Z2015-09-29T08:40:56ZBeer behemoths struggle to fend off craft brew craze<p>Anheuser-Busch InBev, brewer of Budweiser, Stella Artois and more than 200 other brands, is already the largest beer maker in the world, <a href="http://www.stltoday.com/business/local/is-a-b-inbev-brewing-the-next-big-deal/article_781171ab-ac87-5808-b0f8-a2fa67589959.html">controlling</a> more than 20% of global sales. It may soon get a lot bigger: this week it reportedly <a href="http://www.reuters.com/article/2015/09/27/us-sabmiller-m-a-idUSKCN0RR0YY20150927">plans</a> to bid for its closest rival, SABMiller, in a deal that could create a company worth some US$275 billion. </p>
<p>If this transaction were to occur without either party being forced to sell off too many assets to meet the demands of government regulators – not a sure thing – it could create one of the world’s ten largest companies by market value. The resulting “<a href="http://www.stltoday.com/business/local/how-burger-king-public-offering-could-fund-megabrew/article_282d4dd2-7f69-11e1-a65f-0019bb30f31a.html">MegaBrew</a>,” a term coined by Sanford Bernstein analyst Trevor Stirling, would control as much as 30% of total beer sales.</p>
<p>The planned acquisition continues a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2268705">dramatic trend</a> of fewer and larger brewers dominating the beer industry. Back in 2000, there were 22 major beer makers. A series of mergers, takeovers, joint ventures and majority purchases whittled that down to just four in 2012. These four giants, which also include Heineken and Carlsberg, are all headquartered in Western Europe and currently account for <a href="http://www.beerinsights.com">more than three-quarters</a> of US beer sales. </p>
<p>And soon that could be just three giants. </p>
<p>So what’s driving this intense consolidation in the beer industry? How are these behemoths handling the rapid rise of craft brewing? And what does it all mean for consumers? </p>
<p>The answers to these questions, as I’ve learned over my 17 years exploring food system trends – particularly industry consolidation – and their impact on sustainability, can be as complex as a hoppy IPA.</p>
<h2>The battle for growth</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=764&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=764&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=764&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=960&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=960&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96299/original/image-20150926-17729-5ahnoc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=960&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The chart shows the industry’s steady consolidation.</span>
<span class="attribution"><span class="source">Phil Howard</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>AB InBev, which has been <a href="http://adage.com/article/news/a-sabmiller-ab-inbev-merger-u-s/230264/">rumored</a> to be hunting SABMiller for years, is expected to offer $106 billion to buy the maker of Peroni and Grolsch. It would <a href="http://www.reuters.com/article/2015/09/27/us-sabmiller-m-a-idUSKCN0RR0YY20150927">combine</a> AB InBev’s strength in Latin America with SABMiller’s in Africa, where it controls 90% of the market. </p>
<p>Heineken rejected a bid from SABMiller one year ago, a combination that had the potential to stave off acquisition attempts from AB InBev, at least for the near future.</p>
<p>Although all four of the top companies are extremely profitable, they are experiencing <a href="http://www.antitrustinstitute.org/sites/default/files/Global%20Beer%20Road%20to%20Monopoly_0.pdf">flat or declining sales in many of their largest national markets</a>. That has left acquisitions – both of each other and smaller regional breweries – as one of the few options available to continue the rapid rates of growth demanded by their shareholders. </p>
<p>Their other main options for increasing profits include cutting costs and raising prices. And that’s where we get to consolidation’s negative impact on consumers.</p>
<h2>Price fixing and signaling</h2>
<p>In recent years, the prices for beer have <a href="http://blog.wblakegray.com/2013/02/is-budweisercorona-merger-really-bad.html">increased much faster than those for wine and spirits</a>, coinciding with the <a href="http://www.amazon.com/Concentration-Power-Food-System-Contemporary/dp/1472581113">greater market power</a> of the big four brewers. </p>
<p>In Europe, price fixing has often been to blame, while in the US the tactics have been more subtle, though the the result has been the same. </p>
<p>In 2007, for example, Heineken, Grolsch and Bavaria <a href="http://www.nbcnews.com/id/18176660/ns/business-world_business/t/eu-fines-brewers-m-price-fixing-probe/#.VgliK7ThsQ4">were accused</a> of holding secret meetings in the 1990s to divvy up markets and fix prices in the Netherlands, leading to $370 million in fines by European Union regulators. </p>
<p>In the US, no such meetings were even needed. In a classic example of “price signaling,” AB InBev, which <a href="http://www.ab-inbev.com/content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2014/AB_InBev_AR14_EN_full.pdf">controls</a> about half the beer market, would regularly lift its prices, and SABMiller and other brewers <a href="http://www.justice.gov/opa/pr/justice-department-files-antitrust-lawsuit-challenging-anheuser-busch-inbev-s-proposed">quickly matched those increases</a>. </p>
<p>This behavior got the attention of officials at the Department of Justice, which took the rare action of blocking AB InBev’s bid in 2013 to take full control of Mexican brewer Modelo, maker of Corona and Pacifico. A <a href="http://www.bloomberg.com/news/articles/2013-04-19/ab-inbev-u-s-file-agreement-in-court-on-modelo-acquisition">deal later emerged</a> that allowed the acquisition to go through, but Modelo’s business interests in the US had to be sold to a rival company to prevent AB InBev, which <a href="http://www.ab-inbev.com/content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2014/AB_InBev_AR14_EN_full.pdf">reported</a> $47 billion in sales last year, from having even more market power to control prices. </p>
<p><a href="http://www.ft.com/cms/s/0/17eb2264-6066-11e5-a28b-50226830d644.html">Most analysts</a> expect that if the AB InBev-SABMiller deal goes through, regulators in the US and possibly China will require similar selloffs to dilute the combined company’s market dominance. SABMiller controls about a quarter of the US market. </p>
<p>Regardless, the economic power of AB InBev will increase substantially on a global level.</p>
<p>One example of this increased power is the ability to dominate shelf space at retailers. Many retail chains give either AB InBev or SABMiller <a href="http://www.washingtonpost.com/business/beer-merger-would-worsen-existing-duopoly-by-ab-inbev-sabmiller/2013/02/01/efa78ce8-6b1c-11e2-af53-7b2b2a7510a8_story.html">direct control over the placement of all the beer they sell</a>, including competitors’ products. This gives them to power to place their own brands in the most visible locations, and allot them the most space. </p>
<p>This strategy is aided by offering numerous slightly different versions of the same product, such as the dizzying number of varieties of Bud Light that fill the refrigerator cases. The acquisition could leave AB InBev as the only “category captain” left. And that means your impulse choices would be strongly steered toward this firm. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96542/original/image-20150929-30999-vmzqxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Craft brewing has exploded in recent years.</span>
<span class="attribution"><span class="source">Craft beer via www.shutterstock.com</span></span>
</figcaption>
</figure>
<h2>The counter-trend of craft brewing</h2>
<p>While the big brewers consolidate, a countervailing trend is happening on the other end of the spectrum and shaking up the beer industry. </p>
<p>Although overall beer sales are leveling off in most industrialized countries, double-digit growth has occurred in the craft segment in recent years. To be <a href="https://www.brewersassociation.org/statistics/craft-brewer-defined/">considered craft</a>, annual production must be six million barrels or fewer, less than a quarter can be controlled by a non-craft brewer and most of its beer must derive from traditional and innovative flavors and ingredients. </p>
<p>US sales of craft brews <a href="https://www.brewersassociation.org/statistics/national-beer-sales-production-data/">surged 22%</a> in 2014, compared with about 1% for the overall market, according to the Brewers Association. As a result, craft beer’s market share doubled to 19% last year from 9% just <a href="http://www.bevindustry.com/articles/85377-craft-brewing-2011-volume-sales-grew-13-percent-">three years earlier</a>. </p>
<p>This means that as ownership has concentrated at one end of the supermarket beer aisle, it has diversified at the other end. Although the prices of craft brews tend to be higher, the number of options for beer drinkers has never been greater. At the end of 2014, there were 3,418 <a href="https://www.brewersassociation.org/statistics/number-of-breweries">craft brewing companies</a>, up 42% since 2012. </p>
<h2>The big brewers respond</h2>
<p>Big brewers have responded to the fast growth of craft with two strategies. The first is their conventional tack of acquiring selected craft brewers to offset the <a href="http://money.cnn.com/2015/07/30/investing/budweiser-bud-light-sales-anheuser-busch-inbev/">falling interest</a> in their own top brands, such as Budweiser. The other involves imitating their smaller rivals’ consumer-winning styles with “crafty” beers that <a href="https://www.msu.edu/%7Ehowardp/beer.html">hide their corporate parentage</a>. </p>
<p>Just this month, for example, AB InBev <a href="http://www.latimes.com/food/dailydish/la-dd-golden-road-brewing-buyout-20150925-story.html">purchased</a> Los Angeles-area brewer Golden Road (news you won’t find on the company’s website), and SABMiller <a href="http://247wallst.com/consumer-products/2015/09/10/millercoors-expands-craft-beer-effort-buying-into-saint-archer-brewing/">acquired</a> a majority interest in San Diego-based Saint Archer Brewing Company. </p>
<p>AB InBev has also created less mainstream brands that include Shock Top, Landshark and Wild Blue, while SABMiller developed Blue Moon, Batch 19 and Third Shift. Even the firm Blue Ribbon Intermediate Holdings, which has a “<a href="http://www.mycentraljersey.com/story/life/food/2015/07/21/draft-picks/30387635/">virtual monopoly on American heritage brands</a>,” such as Pabst, Schlitz, Stroh’s, Old Milwaukee and Heileman’s Old Style, outsources most of the brewing to SABMiller. </p>
<h2>An unstoppable trend?</h2>
<p>AB InBev and SABMiller have found some success with these strategies, but they have so far <a href="http://www.motherjones.com/tom-philpott/2014/07/craft-beer-revival">failed to compensate</a> for declining sales of their more mainstream brands. </p>
<p>The growth in craft and independent brews – and their multitude of distinct flavors and styles – shows no signs of slowing down. Each year, for example, the <a href="http://www.greatamericanbeerfestival.com/brewers/beer-styles/">Great American Beer Festival</a> adds to the number of styles that are judged in its competition – currently 92 plus a number of subcategories. </p>
<p>This trend, toward local and independent and away from mass-produced products, is a challenge the dominant players are facing in other industries as well, such as fast food, groceries and soft drinks. Although these huge companies are unlikely to disappear in the near future, the challenge of continuing to satisfy investors as well as consumers has encouraged defensive strategies that could be viewed as either bold or desperate.</p>
<p>Acquisitions are a temporary means of maintaining growth rates, but the success of smaller firms suggests that the bigger “MegaBrew” gets, the harder it may fall in the future.</p><img src="https://counter.theconversation.com/content/47908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Howard receives funding from the National Science Foundation and the U.S. Department of Agriculture. He is president of the Agriculture, Food and Human Values Society, and is a member of the International Panel of Experts on Sustainable Food Systems. </span></em></p>AB InBev’s expected bid for SABMiller continues a trend of industry consolidation at the top, but the strong growth in craft brewing is challenging that strategy.Philip H. Howard, Associate Professor of Community Sustainability, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/29592011-08-21T20:42:57Z2011-08-21T20:42:57ZIt’s hard to see why shareholders won’t ditch Foster’s<figure><img src="https://images.theconversation.com/files/3034/original/fosters_chairman.jpg?ixlib=rb-1.1.0&rect=61%2C61%2C2877%2C1745&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Foster's chairman David Crawford is under pressure from a hostile bid from SABMiller.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>If I were a shareholder in Foster’s, which is facing a hostile takeover bid from global brewer SABMiller, there are three questions that I would ask myself before deciding whether to sell my stake.</p>
<p>First, what is the market outlook for Foster’s, in terms of its consumer growth and its market share?</p>
<p>Second, does the company’s current management have the demonstrated capability to deliver and meet its own growth objectives?</p>
<p>Third, is the share price under the current management likely to exceed the $4.90 bid (less newly declared dividends) on the table from SABMiller, or will it fall further when the offer is withdrawn? </p>
<p>Hopefully it will be sweetened above $5.00 as is often the case in such deals – so keep a close watch. I would expect a sweetener. </p>
<p>These are important questions that need to be answered before deciding on whether to take the money. </p>
<p>Here’s why.</p>
<p>Foster’s has languished until this recent bid, following some significant problems with its acquired wine business. It has seen a significant decline in consumer demand for its products, with its beer sales falling. Its share price hit a low of $4.20 in May and has bounced back on the takeover noise, but it hasn’t seen much sustained improvement in recent times.</p>
<p>The share price climbed during the market peak in 2007, probably due to a healthier economy and an overall market rise rather than the company’s fundamentals. The price is now around what it was in 2004-05.</p>
<p>Looking to the future of the share price, it’s worth keeping in mind the worsening global economic conditions, and the fact that Foster’s share of beer consumption has fallen by at least 2% this year.</p>
<p>The key question that shareholders need to ask themselves is this: where is the company’s growth going to come from?</p>
<p>The management at Foster’s has not outlined any clear strategies for the future to achieve a sustained share price significantly above what is offered. There’s no growth story for the company, so shareholders should think carefully about whether the share price is at risk of falling even further if the offer fails.</p>
<h2>Off-market offer</h2>
<p>SABMiller intends to make an off-market offer to shareholders, so there are no brokerages involved. It will directly contact shareholders, whose details are available through the share registry.</p>
<p>SABMiller will essentially go around the Foster’s board and put the offer direct to the shareholders. </p>
<p>There are a range of regulations around disclosure when a company begins buying up shares in another company, but these don’t apply in this case because SABMiller has come straight out and said that it’s making a hostile bid.</p>
<p>This is typical of their style – they want to take over the entire company and control it.</p>
<p>SABMiller has developed all of its brands through acquisitions. They started out as a small South African brewer, and now their brands include Nastro Azzurro in Italy, Miller in the United States, and the Dutch brand Grolsch.</p>
<p>Every few years they go out and buy a large existing brewer with the aim of growing their international footprint. Consequently the company has a significant presence in every part of the globe apart from Australia.</p>
<p>By acquiring the Foster’s brand, they aim to become a truly global brewer. Their only competitor in that space really is the Heineken Group, Anheuser-Busch InBev, and the Japanese companies, Kirin and Asahi.</p>
<p>If the bid fails, then the Foster’s share price could drop dramatically given its current market outlook.</p>
<h2>Hurdles ahead</h2>
<p>Like all takeover bids, SABMiller’s approach faces some regulatory hurdles. The Federal Government’s Takeovers Panel becomes involved in certain circumstances. </p>
<p>There is also an issue for the Australian Consumer and Competition Commission (ACCC), in terms of market dominance. But that doesn’t seem be a particularly big issue, given that there is quite a bit of competition in the market.</p>
<p>The main issue will be getting the deal past the Foreign Investment Review Board, however this wouldn’t seem to be particularly difficult either.</p>
<p>There is also the question of how the market rates the deal. SABMiller’s share price on the market in Johannesburg has suffered somewhat since this bidding process began.</p>
<p>If the market doesn’t think that a takeover is a good idea then the buyer – SABMiller in this case – often sees its share price fall somewhat. Meanwhile, the target – Foster’s – gets a boost in its price. </p>
<p>This might complicate the price ultimately offered for Foster’s. But nonetheless, shareholders will need to decide whether they feel that the offer price is appropriate.</p>
<p>This is a serious gamble, because at some point SABMiller may well lose interest. </p>
<p>They are making an all-cash offer. It has to be a straight cash offer if it’s made on the market, but it doesn’t have to be all cash if it’s made off-market directly to shareholders. If SABMiller were to offer some of its own shares as part of the deal, this could a cash-and-paper offer.</p>
<p>But this probably wouldn’t be very attractive to domestic investors, who make up a large chunk of the shareholder base at Foster’s.</p>
<p>On balance, and given current economic conditions, I believe that shareholders will ultimately accept this deal. </p>
<p>All brewers are facing an uncertain global demand outlook, so shareholders will probably see this as a good time to liquidate their holdings while they can still get a good price.</p>
<p>The Foster’s board is saying that the offer price is far too low, perhaps pointing to higher prices from the past. So they could claim that the average price for the stock is between $5.50 and $6.00, and the offer is undervalued by 10% to 20%. </p>
<p>Of course, shareholders could wonder why, if the company is worth so much, this isn’t being reflected in the share price now. </p>
<p>One important difference between on-market and off-market selling is that if SABMiller decides to sweeten its offer down the line, shareholders who have already agreed to sell-off market in the direct offer will receive the higher price for their stock when the deal finalises. </p>
<p>This doesn’t occur in on-market sales, where shareholders receive the prevailing price.</p>
<p>So unless there is some fundamental reason offered by the board to justify its higher price recommendation based on fundamentals, it is difficult to see why one shouldn’t sell. </p>
<p>That is assuming that SABMiller increases its offer marginally by around 5% to 10% which I would expect. It also depends on the extent to which they have hedged the Australian dollar which has fluctuated around 5% to 10% since this deal appeared.</p><img src="https://counter.theconversation.com/content/2959/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Vaz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If I were a shareholder in Foster’s, which is facing a hostile takeover bid from global brewer SABMiller, there are three questions that I would ask myself before deciding whether to sell my stake. First…John Vaz, Course Director Master of App. Finance, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.