Anthony Hilton: AB InBev's mega-deal with SABMiller is brewing nothing but trouble

It is a sign of the times that AB InBev, the world’s largest brewer, got a lot of publicity last week when it warned Fifa that its controversial President Sepp Blatter should step down if football’s governing body wants to keep the beer giant’s sponsorship.

In contrast, its far more important proposal that it takes over SABMiller, the only other global beer company that comes remotely close to it in size, has achieved little to no attention outside the business pages.

The proposed merger has been met with almost total indifference and yet it ticks all the wrong boxes.

AB InBev already has at least 20% of the world beer market with brands such as Budweiser, Beck’s and Stella Artois while SABMiller, with Castle, Peroni, Carling and Miller has more than 10%.

It is the ultimate merger that reeks of size for size’s sake — a deal to satisfy management egos which gives all the wrong signals to everyone else outside the worlds of investment banking, broking and public relations.

They think it is wonderful because they will garner riches beyond belief for putting this noxious combination together.

It is not just the advisory fees that will run into billions. The combined group would be valued at about £180 billion and there has been speculation in recent weeks of a global fund effort to raise a loan of a scarcely imaginable $122 billion (£80 billion) to fund the purchase.

Fees on that — even at a rock-bottom 2% — will not leave much change out of $3 billion, given that lack of liquidity in bond markets means sensible institutions are getting ever more wary about taking on long-term debt which they are unlikely ever to be able to sell, and will need a hefty sweetener to show interest.

Then there are the divestments — the sales of businesses that competition authorities worldwide will insist upon in return for allowing this monopolistic deal to proceed.

The sale of Miller’s interests in the US has already been flagged up, as has the disposal of its business in China. Third-party joint ventures are also affected and will probably have to be unwound.

For example, one party supports Coke, the other Pepsi. They cannot both be under one roof.

The other thing the investment bankers will hope is that two of the remaining large brewers, Heineken and Carlsberg, will feel they have to do something to respond.

No doubt they are already lining up potential merger candidates so these two can bulk up by getting together themselves or by pursuing separate deals elsewhere as part of a further round of utterly pointless consolidation.

What is particularly depressing, however, at a time when shareholders are being reminded of the perils of short-termism is that the only good thing going for this bid is the amount the bidder seems willing to pay.

No one seems willing to stand up for the fact that SABMiller has been one of the world’s most successful companies since it joined the FTSE 100 index in 1999, and has done nothing to merit its loss of independence.

Since then, it has delivered a total shareholder return of almost 750% compared with about 75% for the FTSE as a whole.

If doing 10 times better than your peers does not garner loyalty from investors, it is hard to see what would.

And in that time, SABMiller has also generated an enviable reputation as a good corporate citizen in the communities in which it operates — in contrast again to AB Inbev, whose reputation is as a ferocious cost-cutter.

Given that we are supposed to be aware these days of corporate culture and tone from the top, it should be of at least passing interest to reflect on the consequences on the business, its suppliers, employees and customers of the AB InBev culture coming out on top.

Apart from the shareholders, what characterises this deal is the number of losers — there will be fewer suppliers, fewer employees, less choice for customers and no doubt lots of legitimate new ways for the company to avoid paying taxes.

All this surely gives the SABMiller board a reason to fight. Its members have a choice. Price is important but it is not everything.

Indeed, the 2006 Companies Act specifically says boards have a duty “to promote the success of the company for the benefit of its members as a whole”.

The Act helps boards further by listing key factors they ought to consider. These include the interests of employees, suppliers and customers, and of the environment and the communities in which the company operates.