For months, if not years, analysts have been speculating that the next mega merger in the global beer space will be the acquisition of SABMiller by beer making giant, AB InBev.
With a market capitalisation of £109 billion, AB InBev is very much the gorilla in the space. Even combined, the value of the world’s second and third biggest brewers – SAB Miller at £54.8 billion and Heineken at £27.2 billion – doesn’t bring them to the heels of the maker of Stella Artois, Budweiser and Corona.
Over the weekend news emerged that SAB had made overtures to Heineken regarding a potential takeover. However Heineken, which brews Amstel and Heineken beer rejected the offer, after consultation with its largest shareholders.
It prefers to retain its independence. The proposal is “non-actionable,” the company said in a statement. “The Heineken family and Heineken N.V.’s management are confident that the company will continue to deliver growth and shareholder value.”
This should not have come as too much of a surprise to the grey suits at number one Stanhope Gate in London. Heineken may be by far the smallest company in the top three, but it retains a strong sense of its own identity and culture – forged over the last 150 years. The founding families are still involved in the company, holding 28.8% of the shares. Mexican beer company Femsa, which Heineken acquired in 2010, holds 20%, while public shareholders hold the remaining 54%.
According to a report by Bloomberg, the SAB offer, which was made in the last two weeks, would have made the Heineken family one of the largest holders in the combined company; but the family rejected the bid as they don’t want to lose control.
Assuming that SAB had offered a 30% bid premium to Friday’s close (about $75 billion EV) and paid the Heineken family in shares and everyone else in cash, the Heineken family would have ended up with about a 14% stake in the combined entity, compared with its current biggest shareholders Altria, with a diluted 24% for Altria and the Santo Domingo family with an 11% stake, says Trevor Stirling, beverage analyst at Bernstein Research.
“In our view, the Heineken family much prefers having effective complete control of the world’s third largest brewer than being the second largest shareholder in a much larger entity, not to speak of the very strong emotional and governance links they still have to the company and the brand.”
But in a world where size counts, the bid could make sense: The combined entity would be the largest brewer in the world in volume terms with a 22% share of global volume (pre disposals) compared to 18% for ABI, says Stirling. But it would still be a distant number two in terms of share of the global profit pool with 21% pre disposals and synergies compared with 32% for ABI.
Notably, a merger would put SAB beyond AB InBev’s reach. The advantage for Heineken would be access to SAB’s distribution platform and unequalled access into the emerging markets.
However it seems that regulatory and other hurdles may be too much. “We view this as an extremely complex combination which would require substantial disposals, and where the executional and cultural challenges of merging these two companies would be immense,” says Stirling. “We are not surprised by the Heineken family’s apparent peremptory dismissal of the approach.”
However, what applies to this deal – in terms of cultural and regulatory complexity – will almost certainly apply to any deal involving AB InBev. This may encourage SAB to swallow its pride and try again.