LEX It took two decades, determination and a mighty chunk of debt, but by combining with Belgium’s Interbrew and then buying mighty Anheuser Busch, chief executive Carlos Brito has turned what was once just a Brazilian brewer, AmBev, into the world’s largest beer maker. So what next – after the $2.3bn cost-cutting exercise at Anheuser-Busch InBev has eventually been completed? 
Where allowed by local law, consolidating the US’s “three-tier” system of separate beer distributors is one possibility. But there may be a more appealing long-term prospect for a team that has long acted like a private equity outfit: sell out to PepsiCo. The soft drinks and snacks company is already trying to buy back its US bottlers. That partly recognises the flaws in separating brand owners from distribution – capped returns provide little incentive for bottlers to innovate or take risks. But it may also reflect a growing Pepsi fear that ABI, which has a market capitalisation of $58bn and bottles for Pepsi in South America, has become too large to remain the subordinate partner. Pepsi, with an equity value of $86bn, is therefore bulking-up.
Buying ABI would certainly knock that risk on the head. It would also bring important opportunities. Pepsi’s marketing gurus could reinvigorate beer brands neglected by ABI’s cost-cutters. Combined distribution of beer and soda also works best in undeveloped markets, where small stalls and bars make up much of the market. That is potentially the key to dominating countries such as India and China, where growth lies.
ABI’s investors and management will want to see the benefits of the recent merger come through before contemplating a sale. That, in turn, gives Coca-Cola a window of opportunity to maintain its lead over Pepsi. SABMiller is a big bottling partner for Coke in Africa and South America, and works with Coke’s bottler Amatil in Australia. Although buying SABMiller would be a radical step, the world of beverages may be headed towards the convergence of beer and soft drinks anyway. Coke should take a serious look.
E-mail the Lex team confidentially
OR
Post public comments
_________________________________________
Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.
If you have questions or comments, please e-mail help@ft.com or call:
US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248
