The sale is part of the company’s attempt to ease regulatory approval for its merger with SABMiller, but did management let it go too cheap?
Anheuser-Busch InBev recenty announced the $1.6 billion sale of SABMiller’s stake in Chinese brewery CR Snow. The deal is part of AB InBev’s ongoing efforts to “proactively address regulatory considerations” in its bid to secure approval for its mega-merger. However, there was likely a deep sense of disappointment that the company couldn’t keep its ties to the Chinese brand.
China is the biggest beer market in the world, accounting for a fifth of the world’s total volume and having surpassed the U.S. for that title way back in 2002. And CR Snow itself has grown to be the biggest brewer in the world by volume, controlling 5% of the global beer market, more than Bud Light and Budweiser combined.
While Anheuser-Busch and Miller dominate more than 70% of the U.S. beer market, CR Snow controls about 70% of the Chinese market. Anheuser-Busch surely wanted to hold onto such a sizable partnership, but the antitrust hurdle was likely just too high. The company was resigned to selling its stake in CR Snow to Miller’s joint venture partner China Resources Breweries.
When InBev bought Anheuser-Busch in 2008, it agreed to a few stipulations in China to get around antitrust concerns, including:
Anheuser-Busch could not increase its stake in Tsingtao Brewery.
InBev could not increase its 28.5% position in Zhujiang Brewery.
AB InBev could not own any part of Beijing Yanjing Brewery.
And most importantly, it also could not own any part of CR Snow.
If it wanted to get over that last hurdle, Anheuser-Busch would have to get the approval of the Chinese Ministry of Commerce (MOFCOM), which has proven to be leery of allowing outside investors to hold majority positions in Chinese companies. That was hinted at in its demands that Anheuser-Busch be prohibited from increasing its stake in any domestic brewer and suggested that any sort of relationship with the brewer was going to be difficult under China’s anti-monopoly law.
Yet the sale price for Miller’s 49% position in CR Snow was something of a surprise, as some analysts had been valuing the Chinese brewer at as much as $3.5 billion, or double what the company received. Other analysts speculated that regulators may have influenced the deal — with China Resources having the right of first refusal, it was able to acquire the remaining stake at a bargain price.
The sale, however, adds to a string of assets Anheuser-Busch has agreed to divest to win regulatory approval around the world.
In the U.S., Miller’s joint venture with Molson Coors, MillerCoors, is being sold for about $12 billion, giving up some of the better performing domestic brands, such as Coors Light and Miller Light. Both of those beers have gained market share in recent periods, even though overall volumes are down as a result of the sustained popularity of craft beer, which now accounts for 11% of all beer volume in the U.S. and almost 20% of dollar sales.
In Europe, AB InBev is also shedding two popular brands, Italy’s Peroni and Grolsch from The Netherlands, which it is selling to Japan’s Asahi Group Holdings for $2.8 billion.
The size of the new Anheuser-Busch-Miller brewery, should it win regulatory approval, will still be massive. The company will have annual revenue of about $64 billion, representing about 30% of global beer sales, putting the Anheuser-Busch back on top worldwide.
It was a deal that most had expected, and though the price is less than what many predicted, Anheuser-Busch InBev will still be a major force in the industry going forward.