Carlos Wept

Is the consolidation of big brewers going to reduce itself to absurdity? Speculation continues to strengthen that Anheuser-Busch InBev is going to make a bid for SABMiller. Leaving anti-monopoly issues out of it for the moment -- since, well, really: does anyone actually think the U.S. government is going to do anything about one company controlling 2/3+ of the beer market? Of course not; return to work, cogs -- let's think about this.

ABIB has the means to do the deal; they've been slashing costs and raising prices (even though their volume in their most lucrative market -- the U.S. -- is still dropping), they're making more money (not a great long-term state, how long can that go on, eh?)) and the debt from the purchase of A-B is either paid off or close to it; they've got a substantial warchest of almost $5 billion in cash/equivalents that will make a good start towards financing another acquisition.

ABIB probably wants to do the deal. SABMiller has been investing heavily in Africa and Asia, which are still growing beer markets (and ones where ABIB has not been particularly successful). And let's be honest: this is how Carlos Brito and InBev have worked for years. They are not brewers: they are bankers, and they grow their "breweries" by buying other "breweries," which are just counters, money, and markets to them. It's about money and balance sheets, slashing costs and raising prices. Anyone still shocked by that? God, I hope not.

Can SABMiller stop them? Dunno. Finance is not what I do. But judging from the speculation and the effect it's having on SABMiller's share price, it seems like a good guess that the answer is no. Especially since the market seems to "want" this to happen.

That's too bad. For one, the management at SABMiller is pretty sharp, especially in the U.S. part of the company. Sure, head honcho Graham Mackay said that craft beer would inevitably fade -- how's that working out for ya? -- but he's been brilliant on just about everything else. He's probably moving on soon anyway, but he's got some very smart lieutenants...and ABIB would probably dump them all and replace them with bean counters. It seems to be what they do.

This does mean something to you, of course. Consolidation will inevitably lead to more price increases, and when the mainstream beers that are still over 90% of the market take price increases, that's a green light to craft brewers to follow the leaders. Really, they do, because they can, and they want to pay their workers a better wage so that a craft brewmaster can finally make as much as a bottling line worker at a Miller plant.

The upshot? Kinda weird. Like I said here, 2 1/2 years ago, one of these days, Carlos Brito is going to run out of big breweries to buy...and then what happens? Will he start buying spirits companies? Will he start buying into wine? One thing I feel pretty sure about is that he won't suddenly decide to buckle down and make brewing the real focus of his energies. It's just not his style. Or his interest.

Consolidation Beat goes on, says MarketWatch

Following up on yesterday's post on the Heineken-FEMSA deal, an article from MarketWatch sees more brewery consolidation to come at the top. (I let you down; should have had this for you, because it's all stuff I knew. Sorry.)

Currently, the four top players control about 50% of the global market. And in his remarks, Heineken CEO Francois van Boxmeer said it is likely they will soon gobble up another 25% between them.

It's out there, waiting to be had. FEMSA's Mexican compadre, Grupo Modelo, is already half-owned by ABIB, and there's a good-sized chunk right there.

There are bumps in the road. The remaining breweries are often owned (or partially-owned) by families or foundations, which will present challenges to a quick acquisition...but it's hardly a dealbreaker; A-B was partly family-owned, after all, as is FEMSA (and Heineken, far as that goes).

Will we see 75% of the world's beer market controlled by two to five companies? What effect will that have on beer prices, on brewing commodities? Why isn't this an anti-monopoly issue?