Heineken's Rebuff of SABMiller Won't Stop Beer Industry Consolidation

NEW YORK (TheStreet) -- Heineken refused Miller's buyout offer, but that won't be the end of beer industry consolidation.

On Sunday, Bloomberg reported that Amsterdam-based Heineken International was approached by London-based SABMiller (SBMRY) with a buyout offer. According to Euromonitor, SABMiller controlled 9.7% of the global beer industry in 2013, second only to Anheuser-Busch InBev's (BUD) 20.6% share. Adding Heineken would have given it that brewer's 9.2% global stake, which includes its namesake brand, Amstel, Sol, Dos Equis, Tecate, Murphy's Irish Stout and Strongbow cider.

It also would have added a potential $44 billion in market capitalization to SABMiller's $60.2 billion market cap and increased an SABMiller portfolio that includes the Miller, Leinenkugel's, Keystone and Milwaukee's best brands, as well as MolsonCoors's (TAP) Coors and Blue Moon brands through the MillerCoors North American joint venture. However, the Heineken family issued a statement on Sunday night rejecting SABMiller's offer.

The Heineken family has only a minor stake in Heineken International's publicly traded shares but still holds a majority of the voting shares in the company. Any acquisition by SABMiller or merger with MolsonCoors, as speculated by The Wall Street Journal, would have to meet with their approval.

The family previously approved the acquisition of the Scottish & Newcastle family of brewers for more than $15 billion in 2008. That gave Heineken rights to the Murphy's, Strongbow, Newcastle and Beamish brands, as well as European distribution rights to Australian brand Fosters, which it retained when SABMiller snatched up Foster's for $10 billion in 2011.

The family also approved Heineken's $5.7 billion acquisition of Mexican brewer FEMSA in 2010, which gave it control of the Dos Equis, Tecate and Sol brands. Those Heineken acquisitions were made as Belgium/Brazil-based InBev purchased Anheuser-Busch for $52 billion in 2008 and just before Anheuser-Busch InBev purchased Mexican brewer Grupo Modelo -- maker of the Modelo, Corona and Pacifico brands -- for more than $20 billion last year.

Since then, both Heineken and SABMiller have been rumored takeover targets for Anheuser-Busch InBev as it expands its global presence. Each one has taken steps to ensure its own survival, including SABMiller's consideration to takeover Guinness and Red Stripe maker Diageo (DEO)  or its beer portfolio to add to SABMiller's 200 brands in 75 countries. Heineken, meanwhile, has expanded its global footprint to 115 breweries in 65 countries while trying to keep pace with its larger competitors.

Yet both A-B InBev and SABMiller have stayed a step ahead by opening up new segments of shrinking markets and taking a share of sales in booming beer countries. U.S. beer sales sank 1.9% by volume in 2013, but sales of limited, more expensive craft beers rose 17.9% during that same span. According to Moody's, SABMiller's stake in both the Leinenkugel and MolsonCoors brands gives it a 13% stake in the overall U.S. craft beer market. A-B InBev, meanwhile, acquired the Chicago-based Goose Island craft beer brand for $38.8 million in 2011 and took over Patchogue, N.Y.-based Blue Point Brewing Company for an undisclosed sum just last year.

Meanwhile, in the growing Chinese beer market, InBev took control of China's fourth-largest brewery, Harbin, in 2004 after SABMiller bought a 30% stake in it just a year earlier. Meanwhile, an SABMiller joint venture with China Resource Enterprises -- which produces 5.6% of the world's beer, compared to just 3.2% for MolsonCoors -- has produced the world's best-selling beer, Snow lager.

A Heineken-SABMiller merger isn't happening, but consolidation will continue shrinking the beer market a few brands at a time.

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At the time of publication, the author held no positions in any of the stocks mentioned.

-- Written by Jason Notte in Portland, Ore.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


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You can view the full analysis from the report here: TAP Ratings Report

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