AB InBev's bid for SABMiller: A brewing merger makes sense when lager is in the last chance saloon

US Outlook

Trivia question for whenever you meet an American in the boozer: what is the largest US brewer? Hardly any will get it right. In fairness, not many bearded, pipe-smoking Camra members are going to get it right either: the answer is DG Yuengling & Son, based in Pottsville, Pennsylvania. Yingling, to spell it phonetically, is just ahead of the Boston Beer Company, brewer of the surprisingly decent Samuel Adams.

American taste in beer has gone through a revolution in the past 20 years, and boy was a revolution needed. Not long ago walking into a bar, any bar, meant choosing between insipid, weak lager or equally insipid, even weaker light lager.

Now many US bars have beer menus complete with nonsense about nose and bouquet, while anything under 6 per cent alcohol is considered driving beer. The absurd growth in beer snobbery in the US perfectly illustrates a common complaint about Americans: they come to the party late, take over the bar and then claim it was their party all along.

Traditional “beers” still dominate sales, but the main players in the American brewing industry are no longer American. The big brewers sold themselves down the drain years ago – funnily enough, the same place most of their beer should have gone. Budweiser is now a mixture of Belgian and Brazilian, Coors is Canadian and Miller is mostly South African but also vaguely British. So news of AB InBev’s bid for SABMiller, which would create a $270bn (£175bn) behemoth, was greeted on this side of the pond with a collective shrug of the shoulders and sober indifference, despite Americans being begrudgingly impressed by the huge numbers involved.

It’s hard to imagine how anyone in the world apart from investment bankers and SABMiller shareholders will benefit from the deal. Certainly not beer drinkers – although if you have such malformed taste buds that you actually drink anything made by AB InBev or SABMiller out of choice, you get what you deserve.

Combined, the two companies will take up more than 30 per cent of the global beer market and almost 60 per cent of global beer profits – a position of extraordinary dominance. Despite that very obvious and very real threat to competition, regulators are going to have a hard time putting the kibosh on the deal because of the lack of geographical crossover. The sale of some assets, including SABMiller’s joint venture with Molson Coors, should be enough to cow regulators into submission.

It might be stating the obvious, but if the deal goes ahead, all of the risk belongs to AB InBev and particularly its ambitious Brazilian backer, 3G Capital. The very real threat is that if American taste in beer can change then so can anyone’s – and everyone’s taste is changing. Craft beer, wine and abstinence are eating into lager volumes in all developed markets. A combined AB InBev and SABMiller is likely to result in greater product hegemony and brewery closures (doubtless to be referred to as “synergies”) as the combined company fights to maintain volume, profits and margins in the face of a rising tide of changing tastes.

Meanwhile, SABMiller shareholders will probably accept whatever offer materialises and in so doing kill the goose that laid the golden egg, albeit for a very sweet price. A return of something like 250 per cent in the past five years, even before AB InBev’s interest gave the stock a depth charge, is handsome enough by any standard. Still, nobody will blame them for taking what is likely to be offered.

If regulators give the deal the green light and AB InBev gets anywhere near the £42 per share most analysts seem to think it can afford, any resistance will be short-lived.

In the long term SABMiller investors might be better off staying independent (relatively), but in the world’s largest markets, demand for lager is not what it used to be. And those investors know it.

Airbus has parked its planes on Boeing’s lawn

There was great pomp and circumstance in Mobile, Alabama, last week – presumably a rare combination of words – as the European aircraft maker Airbus got around to opening its first production facility on Boeing’s home turf. Local and national politicians lined up to bask in the job-creation glow, including the Governor of Alabama Robert Bentley, Senator Jeff Sessions and the British, German and French ambassadors to the US. Quite a turnout for the 270-ish jobs created so far.

The size of the plant, which will initially only meet around 10 per cent of Airbus’s global A320 demand, is small fry in the grand scheme of things. It has the potential space to grow significantly – assuming domestic US airlines want to buy Airbus planes. And they do – sales growth at Airbus is outpacing that at Boeing and the company is taking more and more market share in the US from its once-dominant rival.

Fabrice Brégier, Airbus’s ultra-slick and impressive chief executive, is smart enough to know that the most important detail was the “Made in the USA” sticker he proudly attached to a tail fin at the opening ceremony, while the press and political gold-diggers looked on. Car makers such as Toyota, Mercedes and BMW all made far more in revenue and profits than their investment in US plants and workers cost them. With a list price of around $130m per plane, Airbus isn’t going to have to sell too many to make back the $600m the plant cost to build.

Mr Brégier is also smart enough to know that Alabama’s relatively low labour costs and historical resistance to unions make Mobile an ideal spot to take on Boeing. It’s probably no coincidence that the new Airbus plant is at virtually the opposite end of the country to Boeing, based in Washington State. That Alabama has been a “right to work” state since 1954 won’t have been lost on the company.

The idea that Airbus is just a Eurocrat fantasy and money pit is long gone. The shiny “Made in the USA” sticker should send a chill up the spine of every Boeing executive.