It seems counter intuitive. In the mature beer industry, most companies are setting their sights on the relatively-underdeveloped emerging markets, which hold out hope of higher growth.
InBev is doing just the opposite. For the brewing giant, project Aluminium - the proposal to take over iconic American brewer Anheuser-Busch - would reduce the group’s emerging market weighting and instead give it a leading position in the sluggish US beer market.
For the Belgium-headquartered company, it is all a question of balance. The company’s advisers see a combination with Anheuser-Busch as a hedge against future problems in InBev’s largest markets, such as Brazil and Argentina. As part of their planning, InBev’s team have considered the effect on the brewer of an “emerging markets doom case” - a worst-case scenario that the deal with Anheuser is thought to mitigate.
Sources with detailed knowledge of the thinking behind the deal say that InBev’s reliance on its five largest markets would be significantly reduced through a combination with Anheuser. Brazil, Argentina, Canada, Belgium and Korea currently account for about 85 per cent of InBev’s ebitda. Under the proposed transaction, that would fall to less than half. Similarly, a combination with Anheuser would boost InBev’s sales from outside those five countries from about 45 per cent to more than 70 per cent.
There is scope for significant cost savings in the deal. InBev’s team of advisers estimate that synergies could reach $1.4bn by 2011, with the bulk of that coming from the US market.
After delivering better-than-announced savings in the merger of Interbrew and AmBev, the management team at InBev has a reputation for ruthless efficiency in cutting costs. The mooted cost savings in a deal with Anheuser would be in line with other deals in the beer industry - though those close to the company expect that the level of savings announced would be exceeded by InBev’s cost zealots.
A large portion of the savings would come through extending zero-based budgeting - a savings system which requires businesses to justify every expense anew each year - to Anheuser’s business. InBev would also save by using Anheuser’s US sales force.
Anheuser has struggled to drive sales profitably in the ultra-competitive US market - and unlike InBev it has little exposure to faster-growing markets. First quarter margins came under pressure from soaring commodity prices and increased outlay on marketing, designed to revitalise the group’s major brands.
The team behind project Aluminium see the combination of Anheuser with InBev as offering some possible respite. The new group, capitalised at somewhere close to $100bn, would have increased power to negotiate with suppliers - and could squeeze Anheuser’s current US marketing effort by about 15 per cent.
The chance to compress another cost base will appeal to InBev’s upper echelons. As savings from the Interbrew-AmBev deal have run their course, the company has started to disappoint its investor audience of efficiency-fiends. But many players have already picked their teams in the brewers’ consolidation endgame.
SABMiller joined forces with Molson Coors to take on market leader Anheuser in north America - before announcing a €816m offer for Grolsch. Meanwhile, Heineken and Carlsberg cooked up a deal for the UK’s Scottish & Newcastle.
Chief executive August Busch IV may insist that Anheuser is not for sale. But the brewers’ dating game has left InBev and Anheuser with few worthwhile matches - but each other.
Neil Hume and Helen Thomas
