Anheuser-Busch joins global trend with InBev deal

NEW YORK -- A combination of Busch and InBev would create a new global King of Beers, producing more than 357 million barrels a year. And a merger would move SABMiller to a distant No. 2, with more than 200 million barrels. A combined entity would let the Belgian brewer bolster its brands, including Stella Artois and Beck's in the U.S., while trying to grow A-B's brands around the world where Anheuser-Busch has just an 11.5% share compared with nearly half of the U.S. beer market.

After a month of trying to get a better price for its 156-year-old company, the A-B board has opted to join the global consolidation movement. Industry giants around the world and brewers face continued cost pressure with rising prices for the commodities they use in their products. Anheuser-Busch expects the cost of goods sold to rise 3% to 3.5% per barrel this year after first-quarter costs rose 2.3% to $2.6 billion.

"Anheuser-Busch would have run the risk of becoming the next GM, where market share in the 50s may dwindle down into the teens," says Robbert Van Batenburg, a beverage analyst at Louis Capital Markets. "You would have had a strong SABMiller, InBev on a mission to penetrate the U.S. and continued growth of smaller brewers. It has become a very consolidated space, and A-B doesn't have the opportunity to grow that much."

A-B's stock price has been flat for five years as brewers consolidated and as beer volume for big domestic brews languished while premium imports, small craft beers, and wines and spirits kept growing.

Coors Light has been the strongest domestic brew, with volume up 6.6% in the first quarter. That brand was recently folded into SABMiller, formed in 2002 when South African Breweries bought Miller Brewing. SABMiller got regulatory approval on June 5 by the Department of Justice to merge its U.S. operations with No. 3 Molson Coors to create MillerCoors. The combined entity has sales of $10 billion in the U.S. Molson Coors was created in 2005 with the merger of U.S. operations for Molson and Coors.