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