Here’s an excerpt of my thoughts on the merger rumors circulating around Anheuser-Busch Inbev (NYSE:BUD) and SABMiller (OTC:SBMRY).
See if you can follow this logic. Anheuser-Busch InBev — a global megabrewer that has struggled to grow in recent years due to a shift in consumer preferences to craft brews — is reportedly making an offer for its biggest megabrewer competitor, SABMiller … which, like BUD, has also had a hard time generating growth of late.
Both stocks soared on the news, despite the fact that there is virtually zero percent probability that U.S. antitrust regulators will let it happen without some major divestments. BUD finished the day up nearly 7% and SBMRY finished the day up nearly 21%.
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What exactly is the point of paying a massive premium to buy out your competitor, only to immediately turn around and sell its parts piecemeal? I understand that SABMiller has market share in parts of the growth where InBev is currently weak, such as Africa. I’ve written before that Africa is the last investment frontier, and I’ve specifically recommended SBMRY as a long-term play on the rise of the African consumer.
But paying a premium to buy out SABMiller for its African exposure to then potentially dump its American assets at fire-sale prices would seem like an odd strategy.
And that’s assuming the U.S. regulators let it happen at all, which — as I wrote this time last year when rumors started circulating — isn’t likely…