How Bud-Miller Deal Would Enrich Big Tobacco

Source from:  Philly Blogs 10/13/2015

Altria, the U.S. tobacco giant formerly known as Philip Morris (it owns Marlboro cigarettes and Skoal chaw), will walk away with many of the benefits of the proposed acquisition of London-based SABMiller (they own Miller Beer) by Belgium-based AB InBev (they own Budweiser, Michelob, Rolling Rock and many more), while drinkers and brewery workers help share the $100 billion cost, writes John Colley, former executive managing director of French building-materials giant Saint-Gobain (whose U.S. headquarters is near Malvern) and now a professor of mergers & acquisitions at Warwick Business School in England.

That's because Altria is SABMiller's largest owner and collect more than one-quarter of what AB InBev eventually pays. AB InBev upped its offer just this morning. The buyer has "clearly been structuring the offer to suit" Altria and other large owners "through constantly raising the price" and offering stock instead of cash to reduce the owners' tax burden, Colley points out.

"AB InBev's determination to do this deal may ultimately be a problem for them," Colley adds. Investment banker and lawyer fees "will run to hundreds of millions of pounds," he notes. "How much impartial advice do you get when the stakes are so high? Management will expect to benefit as they will preside over a much greater business resulting in greater pay, power and status. Customers are unlikely to benefit and shareholders' ultimate prospects are distinctly risky."

So why does AB InBev persist, and how does it expect to squeeze huge profits from SAB Miller? "The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate. Micro-brewers and their highly differentiated cask ales also continue to make progress," warns Colley." So shutting big industrial breweries and force-merging distributors "become an attractive way of increasing shareholder returns." Enditem