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ST. LOUIS -- Could the world's No. 1 and No. 2 brewers join forces? Rumors have run rampant recently that Anheuser-Busch InBev and SABMiller, the No. 1 and 2 brewers in the world respectively, could soon merge under a whopping $80 billion transaction.
Investors clearly believe the merger makes sense, as they lifted the shares of SABMiller in its home territory of London by 7 percent on Oct. 6, the first day rumors of the deal spread, following a report in a Brazilian newspaper.
The St. Louis Post-Dispatch said the rumors seem plausible for several reasons. The first being that Anheuser-Busch InBev's biggest shareholders come from the investment banking business. It has been three years since InBev bought Anheuser-Busch. Now that the deal has been digested, the company could be looking for the next big deal to come along, the report noted.
The news outlet also cited the potential cost savings the merger would produce. JPMorgan analyst Mike Gibbs estimated the combined entity could trim $1.3 billion from its cost structure.
The third reason the mega-merger would make sense, according to the St. Louis Post Dispatch, is that beer sales in the United States and Europe have been stagnant recently, where Anheuser-Busch InBev sells most of its products. A merger would add growth via Africa, where SABMiller has a leading position.
Therefore, a merger could make sense. But the big question is: will it actually happen or just remain a rumor? Analysts don't think a deal is likely. If a deal were announced, it would certainly face tremendous scrutiny from the U.S. Justice Department. After the merger, one company would account for about 75 percent of all beer consumed in the United States. China could also object to the merger, citing antitrust concerns, said analysts.
Before a deal is even agreed upon, however, both companies would certainly be concerned about merging two varied business cultures. "It's a Latin American mentality vs. a South African mentality, and those two don't mix very well," Tom Pirko, director of consulting for Bevmark, told the newspaper.
Pirko added that he certainly would never pencil in such a deal ever happening. "Coke and Pepsi shouldn't merge, and these companies should think of themselves as the Coke and Pepsi of the beer business," he told the St. Louis Post-Dispatch. "It's about beating your competition, but also about being sharpened by them. The more you compete against each other, the stronger you both become."