Anheuser Busch Inbev SA (ADR) (BUD) received a lot of media coverage recently due to the ongoing speculation in the market that the global beverage and brewing company is planning to take over beer rival SABMiller plc ADR (SBMRY). This instigated a lot of debt buzz from bankers at the LPC’s 20th annual loan conference, held in New York City last month.
The development at the conference was that financing a massive Merger and Acquisition (M&A) deal with Anheuser Busch Inbev will not be a major issue for the highly-liquid environment in the global debt market. On the other hand, there are speculations that if the acquisition does not finalize, it is most likely that the global brewing giant will merge with the global food and beverage company, PepsiCo, Inc. (PEP).
Anheuser Busch Inbev has had a history of spending considerably on M&A agreements. The company has spent $90 billion on various M&A deals over the last ten years. It is further speculated that the $170 billion beer giant now has its eyes set on PepsiCo.
According to Bloomberg, AB Inbev has been contemplating with its advisers regarding the benefits a merger with the leading $142 billion soda company can bring. The company has deeply studied whether or not such a move will make any strategic and financial sense. However, there have been no talks or discussions between the two companies, and no agreement seems to be forthcoming as yet.
Since years, AB Inbev’s practice has been to enter large M&A deals, and PepsiCo seems to be one of the prime candidates for a merger after SABMiller. Analyst call the deal with rival SABMiller to be “boring” since regulators will probably impel divestiture of certain segments and any cost savings which will arise from the acquisition will not specifically lead to increased shareholder value. Moreover, the deal with SABMiller will not be of much strategic value as it will only help AB Inbev expand in its existing industry, without much growth.
Speculators insist that the synergy resulting out of an AB Inbev-PepsiCo tie-up will create more strategic and financial value for investors and shareholders. This combination will help to create a global distribution network of drinks, beers, and sodas, which is likely to add more to the bottom line than a merger in the same industry.
Other factors that drive appeal for such an agreement are the prospective cost and revenue benefits for both the companies of manufacturing, selling, and distribution of sodas and beer through the same retail and distribution channels. Strengths of AB Inbev revolve around cost minimization and robust distribution channels. Such strengths can easily be transferred to PepsiCo’s distribution system and production operations in the North American markets.
AB Inbev has always chosen to expand through inorganic growth in the form of M&As. It seems to be the perfect time for the global brewing company to diversify into the soda business to expand its product portfolio. Like other global leaders who are facing economic issues arising from their large-scale operations, AB Inbev’s large scale might also lead to slower growth in the market.
A merger of the global beverage giants will bring greater value to shareholders of both the companies. PepsiCo’s beverage segment will prove to be more profitable in the long run, while Anheuser Busch’s slackening sales will be reinstated, creating a higher synergy value than a merger within the same industry might create.
Source: Bidness Etc