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Mega-Merger: The Beerhemoth Has Arrived

AB InBev and SABMiller merger finalized: With Newbelco the world’s first beerhemoth has arrived

On Tuesday, October 11, 2016, Newbelco started trading on global stock markets, after SABMiller ceased activities on global stock markets already last week. Newbelco is the result of the mega-merger between the world’s two largest beer producers Anheuser-Busch InBev (AB InBev) and SABMiller.

Newbelco has become the holding company for the combined former AB InBev and SABMiller groups. It is predicted that it will boast annual sales of $55 billion. Newbelco has been renamed Anheuser-Busch InBev, and the former AB InBev has been dissolved by operation of Belgian law.

In a press release (PDF), AB InBev writes:

AB InBev will benefit from a geographically diversified platform, with a stronger presence in key emerging regions with attractive growth prospects, such as Africa and Latin America. The growth opportunities in these developing markets complements the stability and strength of the company’s strong existing.”

Aggressive pursuit of profits

In order to ensure that the massive investments will pay off, AB InBev is expected to aggressively pursue profits – especially in developing countries of Africa, Asia and Latin America. According to the Financial Times the merger is the third largest acquisition in history and the largest ever in Britain — where SABMiller remains headquartered until its main corporate functions merge with AB InBev’s in Belgium.

One indicator is that AB InBev will cut 3% of its global workforce after the merger. Another indicator is the aggressive pricing strategy in Africa that AB InBev and SABMiller have been pursuing.

The backbone of SABMiller’s growth strategy in Africa is to ensure the affordability of our beers,” said an SABMiller spokesperson, according to The Independent.

As a matter of tact, SABMiller’s African brands are one of the main reasons why AB InBev pursued the merger. Carlos Brito, the chief executive of AB InBev, has said that Africa is a “key piece” of the deal.

AB InBev has been repeatedly found to employ unethical business practices in its aggressive pursuit of ever more profits. Just recently it paid $6 million to settle bribery charges in India.

Beerhemoth posing massive obstacle to development

Experts for public health and sustainable development highlight the need to expand into developing countries and turn both young people and adults that are not using alcohol into loyal alcohol brand consumers.  The consequences can be dire, as increasing alcohol use fuels a rise in alcohol harm – without the safety net of functioning health care and social welfare systems.

In the aggressive pursuit of profits and reward for the gigantic investment into the merger, AB InBev is set to exploit populations were alcohol consumption is low, compared to Europe and the United States. The new beerhemoth is the world’s biggest brewer by far, earning half the industry’s profits and making one in three beers worldwide. It can thus wield tremendous market power in terms of pricing – already African countries experience the promotion of ultra-cheap beers to recruit new consumers.

In Nigeria – Africa’s largest beer market – for example, SABMiller sells beers that are 40% cheaper than those of its rivals Heineken and Diageo. From Kenya, Bloomberg reports that cheap beer helped East African Breweries (EABL) post a 7% increase in full-year profit to 10.3 billion shillings ($101.6 million) from June 2015 to June 2016. EABL belongs to Diageo, the world’s largest liquor company.

Triggering further market concentrations

The global beer market has seen numerous waves of concentration. AB InBev itself is the result of a company merger. But even this mega merger seems to be fueling further market concentration. As a consequence of the merger, several brands have to be spun off – which attract the interest of other major alcohol producers. Forbes reports that Japan’s Asahi has expressed interest in following up its purchase of Peroni, Grolsch and Meantime with the purchase of additional brands. Kirin, also from Japan, and China’s China Resources Enterprises are also said to be among those eyeing the brands, which include the Czech Republic’s Pilsner Urquell.

Market concentration is not only a consumer problem but also a public health problem. As multinational companies amass more market power, their purchasing power increases which allows them (and compels them)

  • To spend more on alcohol marketing in order to drive sales up;
  • To spend more on political lobbying through social aspects and public relations organizations; and
  • To invest more in funding their own science.

New beerhemoth still thirsty

AB InBev has over the years shown that its strategy for growth is acquiring competitors. The size of the new beerhemoth becomes evident as rumors start swirling about a possibility that AB InBev might be aiming for Coca-Cola. Forbes reports of recent and growing speculations that AB InBev could make Coca-Cola its next takeover target. The world’s first beerhemoth has arrived but it might change its shape and size soon again.

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Source Website: FORBES