COMMENT: Interbrew/AmBev’s mixed blessings
Interbrew has announced its intentions to take a controlling stake in AmBev, creating one of the largest brewers in the world. For both companies, the main driver for the tie-up is an ongoing search for market share in the other's main markets. However, if Interbrew loses important components like Labatt and Rolling Rock, it might yet find itself with a hefty bill to pay.
Interbrew, the fourth-largest brewer in the world, has announced plans to take a controlling stake in AmBev. The new firm, InterbrewAmBev, would have a global market share of approximately 14%, and combined revenue of US$11.9 billion. Interbrew, owner of brands such as Stella Artois, Beck's and Labatt Blue, would end up with 57% of AmBev while, in return, AmBev would acquire Interbrew's Canadian subsidiary Labatt, the American brand Rolling Rock and its Mexican operations. Although the companies resisted calling the deal a takeover, AmBev, is technically ceding control to Interbrew.
For Interbrew, the merger represents an opportunity to enter some of the world's fastest growing beer markets. The company has been keen on gaining a bigger presence in emerging markets where consumption is increasing more rapidly than Europe and the US. AmBev has a presence is every Latin American country except Colombia and Mexico, and it sells two-thirds of all beer sold in Brazil. If this deal comes to fruition, AmBev's brands would be retailed in some of the world's largest markets where Interbrew has long-established operations.
At first glance, the deal seems to make sense from a geographical point of view. It would give Interbrew immediate access to the Latin American market while AmBev would benefit from distribution channels in Europe and the US. In terms of product portfolio, Interbrew will further leverage its three global brands - Stella Artois, Beck's and Brahma - while further strengthening specialty and localised brands in national markets.
The success of the deal will eventually be evaluated on whether shareholder value was created, and this raises questions over how Interbrew will fund this transaction. Under the terms of the deal, Interbrew will have acquired a brand portfolio limited to Latin-American appeal, and forgoing the Labatt subsidiary along with its Rolling Rock brand is possibly a price too large to pay. In the long run, Interbrew might eventually have to settle the bill.
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