To gets its $107 billion offer for SAB Miller past U.S. antitrust regulators, AB InBev has agreed to give up MillerCoors. Investors are concerned it will have to make similar concessions in China. But the company should do whatever it takes to avoid that.
As Duncan Fox, an analyst at Bloomberg Intelligence points out, the Chinese authorities aren't instinctively against market dominance -- as long as the companies concerned are Chinese-controlled.
As things stand, SAB's Chinese joint venture CR Snow is the country's biggest brewer, with a 23 percent share, according to Euromonitor International. It's 51 percent-owned by China Resources Beer. SAB owns the rest.
AB InBev brands including Budweiser and local brews Harbin and Sedrin account for about 14 percent of the market in China, meaning a combination of the two would give them 37 percent. That's worth about $29 billion a year, according to Euromonitor.
The difficulty for AB InBev as it starts talks with the Chinese regulators is it has a management ethos that demands control over its assets. That's why it can promise $1.4 billion of yearly pretax synergies from the SAB deal, on top of the $1 billion already promised by the target company.
But if it could relax its stance slightly in China and come up with some kind of combination that leaves a Chinese entity with a majority holding, that could help it keep hold of more assets than it would otherwise be able to keep.
Of course, the Chinese authorities could decide anyway that disposals are needed before they nod through any deal. Yet the rewards for keeping at least some of the assets would be considerable. The Chinese brewing operations have lower profit margins than other countries, so there is a big opportunity for a cost-cutter like AB InBev.
It also goes to the heart of a broader cultural concern about the creation of "megabrew". While AB InBev is known for its centralized culture, much of SAB Miller's success has been largely down to its its approach of letting local managers get on with running their businesses in their own way. This has paid particular dividends in emerging markets such as Africa. AB InBev should be careful not to exert too tight a squeeze.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
James Boxell in London at email@example.com
To contact the editor responsible for this story:
Edward Evans at firstname.lastname@example.org