Beer industry news and analysis shows that Anheuser-Busch and InBev have merged to promote increased growth. In so doing, according to the InBev press release, they have created the global leader in the beer industry, as well as one of the world's top five consumer product companies. The same document also describes the merger as serving the best interests of all parties involved, both businesses and consumers. Part of the new company's explanation of that claim speaks to one of the above-discussed motivations for mergers and acquisitions: gaining access to new local markets. The company press release is careful to point out that there had been "limited geographic overlap" between the two companies as separate entities. Given the particular details of the Anheuser-InBev merger, this may, in fact, have been an asset in avoiding the government interference that has been identified as the major obstacle to M&A. If the press release is to be trusted, all Anheuser-Busch breweries are to remain open in the United States, where forty per cent of the revenue of the new, integrated company is expected to be generated. There is, therefore, no perceived threat to any segments of the U.S. economy, and concordantly no political resistance within that locality.
More broadly, the merger significantly expands the geographic diversity of each of the companies individually, making it an industry leader in the top five world markets. In China, the presence of each company complements the other, with InBev strong in the southeast of the country and Anheuser-Busch in the northeast. As one company, then, they may be in a position to somewhat circumvent would-be resistance to foreign brands in the Chinese market generally. Also, the ten markets where InBev is the local leader in the beer industry are markets where Anheuser-Busch's Budweiser brand is weak.
In light of the strongly positive financial expectations for the merger, both generally and in particular markets, it seems very unlikely that there should be any negative impacts on supporting industries, to say the very least. And that is to say nothing of the banking and credit industries that are involved directly in the merger, as opposed to in day-to-day operations. An analysis of the forty-five billion dollars in debt that have financed the transaction, those several financial institutions stand to gain substantially on the large investments they have made in the merger. In that respect, such investments constitute additional illustrations of the affect of M&A within the beer industry on related industries and the economy more generally, one of the key concepts of this study.
Of added significance to the study at hand is the commentary of InBev CEO Carlos Brito, who is quoted at some length in the company press release. He says, in part: "Together, Anheuser-Busch and InBev will be able to accomplish much more than each can on its own. We have been successful business partners for quite some time, and this is the natural next step for us in an increasingly competitive global environment." This seems to strongly imply a sort of near-inevitability of the current merger, for several reasons. Firstly, if the individual companies simply cannot accomplish what the combined company can, that suggests that the eventual merger is the endpoint of the individual development of the original companies, and that they cannot be further streamlined or expanded through internal improvements. This merger, then, presumably results not only from the culmination of those developments, but also the exhausting of possibilities for collaboration of separate entities. Then, perhaps that is so only due to present circumstances, but Brito seems to suggest that those current circumstances are ones of increased global competition, and a greater necessity of high market share and so forth for companies that would continue to increase profit margins and gain in success.
Peter Swinburn succinctly describes a definite element of the current circumstances of the global beer industry, saying that "Consolidation started 10 years ago and probably has 10 more to go before it winds down." He then proceeds to a higher level of detail, identifying ten top brewers, as of 2004/2005 who were vying for dominance, and projecting that as the deals become more large and complex, antitrust issues will get in the way. Swinburn also names the top ten global markets, pointing to China as the largest, followed by the United States, Germany, Brazil, Russia, Japan, the United Kingdom, Mexico, South Africa, and Spain. Knowing that China ranks first, and that it presents very high profit margins for international companies, makes the information about that locality with respect to the InBev/Anheuser-Bush that much more significant. However, Swinburn was, of course, not discussing the industry in terms of that merger but that of his company, Coors, with Molson.
About that particular topic, and the subject of consolidation in the beer industry as a whole, Swinburn seems rather less optimistic than those at the helm of the InBev-Anhueser merger. He does, however, recognize a geographic advantage in his company's merger, in that it secures forty-two percent of the Canadian market. But this was a necessary gain, in his estimation, because Coors had held a quite small share of the United States market. That in mind, Swinburn emphasizes that steps must be taken to give the merged companies a greater global presence. It stands to reason, however, than some of the obstacles to optimism in his case may be these loose ends of development. In that Coors has not improved the efficiency of its brewery or found ways to reduce high distribution costs, it may be argued that the company had not reached the endpoint of lone development that would have M&A the best course toward increased profitability. Of course, as Swinburn does indicate, the access to Molson breweries provided by the merger helps to counteract these problems, but still it can be said that they must ultimately be addressed on their own terms, to truly maximize the company's competitiveness.
And Swinburn makes it clear that being highly competitive and distinctly global is of the utmost importance to players in the beer industry. He states that the overall market for the product is virtually stagnant, but that there are dramatic shifts within the industry, according to competition between particular companies and growth within new local markets. It is in that environment that it is so crucial first to grow a company's efficiency and profitability through all reasonable internal measures, and then to further expand exposure to and engagement with various markets through external growth, as by mergers and acquisitions, or else through horizontal integration, taking up a share of the market for other consumer goods.
In any event, government reaction to fundamental business practices or their particular examples is central to their basic success or failure. Specific such reactions and their consequences will be case-by-case, and many have several potential motivations. Ian Katz writes of the case of the Brazilian merger between Brahma and Antarctica, forming AmBev that the consequences of government treatment of such mergers extend well beyond the Brazilian beer industry, and again beyond issues of supporting industries, touching upon concerns for the very economic future of the country. As he puts it, decisions about the brewing industry, where consolidation is so prominent an issue, can set a precedent for whether Brazil seeks to promote internal competition or allow the formation of large local companies that can withstand foreign companies seeking to gain increased exposure to Brazilian markets.
Katz analysis shows that other segments of the Brazilian economy have seen corporations from the United States and Europe rise dramatically in their markets and readily absorb small local companies. Naturally, there is a strong impulse for similar such acquisitions in the beer industry. These infusions of foreign capital are positive in one sense, but cripple the possibility of strong local owned competitors, not to mention multinationals. If retention of local ownership is considered desirable, consolidation of this sort is the only definite way to accomplish it. As with beer, so with the economy generally.
Katz's use of analysis makes this latter point clear, but he does not address the way in which the promotion of mergers within the beer industry, or other individual industry, with this manner of motivation, can affect the same end in other, supporting industries. Locally owned consumer-goods industries can support locally owned raw-materials industries, particularly if government influence on the matter extends to providing added incentives for mutual support of local industries. Consolidation in the beer industry within an economically developing locality can lead also to consolidation of supporting industries in the same locality as they compete for a larger market share of the dependent industry.
The key point in all this is that, counter-intuitively, government involvement in M&A, under certain circumstances, can contribute positively to consolidation moves, from the perspective of the given companies. This is, however, unlikely, to say the least, in highly developed nation, where multiple companies already maintain a strong local and international presence. In developing situations, however, as in Brazil, there is a definite motivation for foregoing anti-trust regulations. Katz indicates, though, that the reality is that there may be positive or negative consequences of so doing for a given locality. While it may impede foreign competitors, a strong union of local companies could conceivably present a markedly attractive buyout option for even stronger competitors, and thus defeat the very purpose of permitting the merger in the first place. And where one set of consequences is positive and another negative for a given locality, the opposite often applies to foreign competitors. But while government motivations may drastically differ based on applicable socio-economic circumstances, the role and direct consequences of mergers in fundamentally the same in all similar cases.
To both extend the discussion of Brazil and to return to the case of InBev and Anheuser-Busch, it was indeed the case that the merger of Brazilian breweries drew attention from still larger North American companies, when Interbrew sought to merge with AmBev, forming InBev, which became the second largest brewer in the world. At the time, Damien Reece reports, Anheuser-Busch was also expected to make an offer. The rapidity of these developments and the numerous layers of them should do well to demonstrate the dynamic nature of the global beer industry in recent years. But Reece continues in the report that Anheuser-Busch, at the time of the AmBev-Interbrew merger, was taking "a highly conservative approach to mergers, especially outside its domestic boundaries." Speculation only about the merger between the two players then clearly expressing interest, however, was sufficient to drive up stocks of each of the other large brewers by two to three percent, reflecting the increasing market share and profit margins that come with consolidation just in the industry itself.
The reasons for and consequences of Anheuser-Busch's resistance to mergers at the time ostensibly warrants some speculation. Considering the above implications of Carlos Brito's comments about the most recent merger, there is some cause to believe that Anheuser-Busch was then aware of being at a point in its development that was fundamentally inwardly-focused, and that the company was decidedly seeking to maximize the market share of its own independent company and increasing its sales, efficiency, and profits within its own market before broadly considering the option of mergers. On this supposition, it was fine management on the part of the Anheuser-Busch company, in that it fully recognized the ideal circumstances of an effective and fully warranted merger of large companies. That assessment is presumably supported by the reality of where Anheuser-Busch stands at present, in the midst of merging with another strongly leading company in the industry, which has already benefited from a reasonably long series of mergers, while not dramatically over taking the more lone-wolf company. On the other hand, perhaps Anheuser-Busch ought to be subject to some criticism, if it can be said that it has not entered negotiation over the current merger in the strongest position, and that that is the fault of its prior resistance to undertaking mergers pro-actively.
That is not to suggest that there are no negative consequences of mergers of such type, the avoiding of which is laudable. That is always the case, though the business implications of harm affected on local communities and the like are not frequently significant to financial or other business considerations. Fred O. Williams speculates about some of the potential consequences for the local Buffalo, NY area, and for the nation more broadly, both being accustomed to the independent, U.S.-based Anheuser-Busch. He is cautiously optimistic that the newly integrated company will not change much in the U.S., noting that they plan to keep all current breweries up and running. He does, however, levy some concerns that the more specific locality's headquarters could be under threat from the transition, along with not only its handful of jobs, but also the marketing and sponsorship within the region that had consistently grown out of that central corporate presence. The broader concern, however, is the potential for an across-the-board increase in beer prices, as competition decreases with consolidation. In almost the same breath, though, Williams repeats the companies' claims that the geographic separation between the two companies will strongly mitigate concerns about the significance of such a change for consumers.
Elsewhere, though, there are consequences that are less speculative. The Cuban market, Vito Echevarria, points out, is a legal issue for the merger between the European In-Bev and Anheuser-Busch, with its headquarters in America, which has strong trade restrictions on Cuba. Therefore, "a merged business based in the U.S. would be legally unable to manage its holdings in Cuba." InBev is expected to cease operations in Cuba to avoid those issues, and it notes that Cuba counts for less than half of one percent of overall volume. This does not translate to similar figures from Cuba's perspective, though, in which InBev employs 570 full-time workers and forty-four percent of the market share of beer sales. This has obvious consequences for the sensitive Cuban economy. Less obviously, InBev's retreat from Cuba will leave a vacuum, which might be filled by another foreign, and non-U.S. based company, or by a consolidated local company. In any event, this is a rare instance in which consolidation may lead directly to a weakening of consolidation elsewhere, and broader global restructuring may follow.
John Halasz is a former writing teacher and currently a professional writer and internet marketer. He has written SEO articles and ghostwritten novels, books, and scholarly articles.
A Canisius College graduate, he went on to the University of Buffalo for his teaching certificate in English writing, earning a 3.934 GPA before going on to teach in Brooklyn, NY.
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