Largest ever merger brews as Big Beer joins forces

With craft beers steadily grabbing market share and consumption drying up in traditionally beer-guzzling markets, Big Beer is mulling a familiar strategy: get even bigger.

Anheuser-Busch InBev, the brewer behind Budweiser, Corona and Stella Artois, confirmed on Wednesday that it has made a takeover approach to its chief global competitor, SABMiller, in a long-rumored move that would bring together the world’s two largest beer conglomerates, which are themselves the products of years of market consolidation.

A successful takeover would rank among the biggest corporate acquisitions in history, creating a company with a combined market capitalization of more than $275 billion. By acquiring SABMiller, whose portfolio includes Miller, Peroni and Pilsner Urquell, Anheuser-Busch Inbev would dramatically expand its presence in the fast-growing markets of Asia and Africa, at a time when consumption is on the decline in the U.S. and Europe and a craft beer revolution eats away at Big Beer’s market share in the United States.

Stocks of both companies surged on the news. AB InBev, based in Belgium, and London-based SABMiller issued brief statements confirming the takeover approach but underlining that no formal offer had been made. “AB InBev’s intention is to work with SABMiller’s Board toward a recommended transaction,” the company said, while SABMiller added that it "would review and respond as appropriate to any proposal which might be made."

Beer market analysts have already begun to theorize how such a mega-merger, which comes after years in which each company has swallowed up smaller competitors, could transform the global market. One critical question is whether the deal could shut out smaller competitors and drive up prices, especially in countries where the Big Two dominate the market.

Trevor Stirling, a beverage market analyst at Sanford C. Bernstein, said in an analysis Wednesday that those concerns would likely cause anti-trust regulators in China and the U.S. to force one or both companies to sell off major assets. In the U.S., where AB InBev has 45 percent of market share and SABMiller has 30 percent, the U.S. Department of Justice would “almost certainly insist on the disposal of SAB’s stake in MillerCoors,” Stirling said, referring to the joint venture Miller and Coors formed in 2007 to compete with AB InBev, and its best-selling beer, Bud Light.

The DOJ similarly intervened in 2012, when AB InBev tried to buy out the remaining 50 percent of Grupo Modelo, the brewer behind Corona. The result was a settlement that allowed the deal to proceed but forced the beer giant to sell Modelo's U.S. holdings to a competitor.

The takeover approach is also seen as Big Beer’s response to an unfavorable sea change in taste and consumption patterns in several critical markets. Consumers in the U.S., for example, are drinking less beer by volume and more wine; and younger consumers, when they do drink beer, tend to gravitate toward craft beer brands. A recent survey conducted by AB InBev found that 44 percent of Americans between the ages of 21 and 27 have never even tried its flagship brew, Budweiser, which once dominated the U.S. market.

As craft beer evolves from a niche hobby industry to a viable commercial threat, capturing nearly 8 percent of U.S. market share in 2013, Big Beer has begun to bear down. In addition to consolidating with other mass producers, companies like AB InBev have also begun to buy out craft breweries and leverage their ties with beer distributors to bring those products to a mass market. Small brewers say this has made it increasingly difficult to get their beers on the shelves or on tap.

Paul Gatza, director of the Brewers Association, which represents the craft beer industry, said he had concerns about how the potential deal might affect distribution networks in the U.S. But he said that many craft brewers would ultimately see it as “not relevant” to their businesses. “The American public continues to respond by sampling more new craft brewed beers and buying more of their favorites,” Gatza said. “Those societal trends won’t change because of this deal.”