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MillerCoors Combo Shouldn't Nip BUD

MillerCoors will be nothing more than a thorn in the crown of the King of Beers.

With their plan to combine their U.S. operations, SABMiller PLC (SBMRY) and MolsonCoors Brewing (TAP - Get Report) can lay claim to 30% of the U.S. beer market and enjoy $500 million in annual cost savings.

Anheuser-Busch (BUD), which dominates domestic brewing with 50% market share, will face a larger competitor on its home turf, but consolidation in this struggling industry can help firm up the pricing environment and benefit all three brewers.

Morningstar analyst Matthew Reilly says the merger amounts to an acknowledgment from the makers of Miller Lite and Coors that they're struggling in a low-growth environment as craft brewers and makers of wine and spirits gulp down their market share.

"The half-billion in annual savings that these companies say they can get from this deal is very real -- you can see exactly where those cuts will come from," says Reilly. "So, this deal is primarily about cutting costs and achieving a more rational pricing environment than it is about stealing market share from Anheuser-Busch, which will be very tough to do."

Finding new avenues of growth in an age when beer is losing its luster with consumers is a major challenge for Anheuser-Busch and a drag on its stock price, but maintaining its market share against its major U.S. brewing counterparts has not been much of a problem.

The Budweiser maker's massive scale allows it to demand exclusivity from about 60% of its distributors, while SABMiller and MolsonCoors have less than 10% of their volume distributed exclusively.
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SBMRY $60.51 0.00%
BRK.A $202,285.00 0.00%
BUD $129.14 0.00%
SAM $212.92 0.00%
TAP $92.50 0.00%


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