E-Malt.com News article: 3074

South Africa, Johannesburg - In the ever-consolidating world of beer, one of the next megamergers could be between SABMiller and Mexico's number two beer group, Femsa, Business Report revealed on August 6. A merger could push the combined entity to the number one slot in the global beer market ahead of Interbrew/AmBev and Anheuser Busch. When South African Breweries listed in London in 1999 it was ranked among the top five largest beer groups in the world.

SAB chief executive Graham Mackay explained back then that a large part of the reason for transferring the group's primary listing to London was to ensure it had access to competitively priced funding in order to be able to take an active role in the consolidation that was going to characterise the industry for the foreseeable future.

Five years and several acquisitions later, the group is still only in number three position. For a relatively brief period after acquiring Miller, the second-largest beer group in the US, SABMiller was in the number two global slot.

However, the recent merger between Belgian-based Interbrew and central American-based AmBev has pushed SABMiller back into third slot behind Anheuser Busch. In terms of beer output, the merged AmBev/Interbrew leads the pack, for now.

Femsa has emerged as a possible merger target following the recent deal between Interbrew and AmBev. That deal provided Femsa with the opportunity to unhitch itself from a shareholder relationship it had with Interbrew.

Femsa was able to force the Belgian group to sell off its 30 percent stake in Femsa on the grounds that AmBev was a competitor. The attraction for SABMiller is not only that Femsa is the number two beer group in Mexico but it is also Latin America's biggest Coca-Cola bottler.

A tie-up with Femsa might also help to strengthen Miller's position in the Spanish-speaking community in the US. Management at Miller has emphasised the strong long-term growth potential from this segment. Last month Femsa announced it was selling $218 million (R1.3 billion) of bonds to finance the repurchase of this stake. Although the company is doing well operationally, news of the debt issue has put some strain on the share price.

One thing that might delay a tie-up between Femsa and SABMiller is that a distribution agreement was put in place with Femsa and Dutch beer group Heineken shortly after the break-up of the Femsa/Interbrew relationship.

According to industry sources, the Femsa/Interbrew break-up was on the cards before Interbrew decided to get into bed with one of Femsa's competitors. This was reportedly because Interbrew wanted to use the joint distribution system to market its Beck's beer in the US.

The distribution agreement with Heineken runs for three years, which industry sources say indicates that Femsa was keen to leave its options open. But it seems unlikely that the agreement would represent a sufficient obstacle to an early tie-up between SABMiller and Femsa.

What might be a little harder to deal with is the agreement Femsa has put in place to import and distribute Coors Light in Mexico. Coors Light is a competitor of Miller's number one product, Miller Lite.

Certainly, given the pace at which consolidation is occurring in the global beer market, SABMiller won't want to wait three years before it makes an approach to Femsa.


11 August, 2004