SABMiller finally accepted Anheuser-Busch InBev's $104.2 billion takeover offer Tuesday, spilling glasses in the beer industry, and flooding speculation on regulatory scrutiny, which could kill the deal. And with appropriate reason: nearly one out of every three beers sold globally would be part of this long-rumored conglomerate.
John Maloney, Bloomberg Law's commercial product director for corporate & transactional, broke down the consolidation trend, specifically in beverage. Food Dive spoke to him before the announced agreement. The most pertinent statistic? There have been 285 proposed deals in the beverage industry in the last five years — and only 16 of those have been either terminated or withdrawn due to antitrust concerns.
That bodes well Anheuser-Busch InBev, but Maloney also cautioned that despite the statistic, this doesn't mean there's just a 5% chance the deal falls apart. "It is in an industry that's gotten hammered in the past," he said.
According to Dealogic, this would be the largest beverage industry acquisition, and well above the $54.5 billion Kraft-Heinz deal. And because of the magnitude, it's heading for intense regulatory scrutiny in global jurisdictions.
The scrutiny factor
On paper, the conflicts are obvious. The U.S. in particular could be the biggest concern: AB InBev has 45% of the market and SABMiller another 25% through its Molson Coors Brewing Co. joint venture.
"These two players, as large as they are, don't have as much overlap in some areas of the world as some of the others that they could acquire." Maloney said.
If AB InBev can’t meet regulatory clearances or fails to have shareholders approve the deal, the company owes SABMiller a $3 billion breakup fee.
This wouldn't be the first go-round for AB InBev in terms of U.S. Justice Department scrutiny, according to Maloney. When it acquired Grupo Modelo, the Justice Department sued to block it. The deal eventually went through, though it had to divest Modelo’s U.S. business. In thinking about what might need to be divested the Justice Department will consider different market concentrations.
Maloney expects the deal likely to go through, but it will take over a year. It will not be without "twists and turns," including potential divestitures.
If that wasn't enough, other trouble is brewing for AB InBev. Reuters reported that the Justice Department is looking into allegations of AB InBev curbing beer market competition by recently purchasing distributors, in turn making it difficult for craft brewers to feature products on shelves.
Comparing this to Kraft-Heinz merger
The Kraft-Heinz deal, the other high-magnitude merger of 2015, met little scrutiny, as brands didn't overlap. Maloney said the point of comparison of this deal with the AB InBev-SABMiller merger is the fallout.
"...About half of the industry's profits globally would be attributable to that combined entity or one of its subsidiaries," Maloney said. "When you look at this in terms of sheer magnitude post-merger within an industry, a titan if you will, that in itself ... that's I think where it compares to the big food deal."
He added, "In general in this industry, you're having a lot of consolidation ... It is driven by the fact that people, particularly in the most wealthy countries in the world are drinking less. So, you literally have an industry that’s seeing people move to craft...There’s a move towards craft and small brewery away from some of the bigger organizations and also there’s fewer dollars to get out there from the drinking consumer, if you will, and as a consequence, that’s actually a significant driver."
And who stands the most to gain from the deal? AB InBev — but both companies win, according to Maloney.
"And that’s why I believe AB InBev has been sort of circling and looking at this for awhile," he said. "It’ll give them greater strength to stay ahead of anything that Heineken might do as the third player in the market."
These recent deals, plus deals done by Hormel Foods, Mondelez, Hain Celestial, worth millions and billions of dollars, have made 2015 a banner year for mergers and acquisitions in the food and beverage industries. The trend of big companies losing market share and consolidating in order to alleviate troubling market conditions will continue in 2016.