Big Breweries Are Crafting A Deal For Beer Supremacy

Time for another brewery megadeal! It seems like just yesterday all the talk was about Anheuser-Busch InBev's takeover of Grupo Modelo, which they acquired in 2013 for $20 billion. Now Bud's parent company, AB InBev, is looking to gain a considerable share of the world beer market by buying up SABMiller, the second-largest multinational brewing company. The proposed deal, revealed a few weeks ago, will considerably dwarf all past beer acquisitions, at a mind-boggling $122 billion. InBev's acquisition of Anheuser Busch in 2008 was only (only!) for $52 billion, which should give you an idea of how highly the company values SABMiller.

While this may be the story that graces business pages for months to come, the importance of smaller craft acquisitions by both of these major brewers shouldn't be overlooked. The deal would give the resulting company an international stronghold, but wouldn't combine its U.S. breweries. Allow me to break down the specifics of the issue, then we'll segue into important recent craft acquisitions to help define this battle of big beer.

On the surface, megadeals like AB InBev's Grupo Modelo takeover and proposed acquisition of SABMiller may appear to be about stake in the U.S. market, but they're pretty much exclusively about acquiring major shares of the international market. While it might seem like the King of Beers is poised to acquire the Champagne of Beers, United States antitrust laws won't allow it to happen. In the Modelo deal, AB InBev was required to sell their stake in the production and distribution rights for brands like Corona to Victor, NY-based Constellation Brands. It's likely they would take similar action in the proposed deal by selling MillerCoors, the U.S. arm of Miller and Coors brands. The nation's oldest and biggest beer rivalry would remain very much intact.

AB InBev and MillerCoors have made it a priority to break into the craft beer game, as they look to add more spice to predominantly light lager-based portfolios. It’s not as game-changing as a multi-billion dollar deal, but by buying small they avoid antitrust laws and add instant craft-cred.

The deal centers on SABMiller's market share of popular international brands Pilsner Urquell, Peroni and Fosters in developing parts of South America and Africa, where AB InBev doesn't have a substantial presence. Even without MillerCoors' American beer brands, the deal would give AB InBev nearly 30% of the global beer market. Adding these important names to the 200 brands AB-InBev already owns will make them outright the largest multinational brewing company with the next largest, Heineken, at just a 9.2% share.

Though AB InBev's brands brought in more than $14 billion in profit in 2013, the giant carries nearly $40 billion in debt. If the deal goes through, they'll need a huge amount of financing. Based on their excellent track record of eliminating debt in order to finance deals in the past, investors aren't ruling out this possibility.

While this would be the largest deal of its kind, it's not exactly the deal that SABMiller would have preferred. Last month, SABMiller attempted to buy Heineken, the world's third-largest brewer. The family-owned Dutch brewery turned down SABMiller's offer, even though the resulting sale would have given them an international market share on par with AB InBev. The rumors have been generous to SABMiller's stock price, as it soared to a 52-week high recently.

While these megadeals may be stealing headlines, brewery acquisitions aren't limited to major international brands. AB InBev and MillerCoors have increasingly made it a priority to break into the craft beer game, as they look to add more spice to predominantly light lager-based portfolios. It's not as immediately game-changing as a multi-billion dollar deal, but by buying small they avoid complicated antitrust laws while being able to add instant craft-cred.

Purists may hate the idea of craft breweries owned by these multinational brewing companies. Some might even boycott a craft brand for cashing in, but so far the inevitable drop in quality that naysayers predicted hasn't happened yet — in fact, quite the contrary. Brands siphon off production of their core beers to their parent breweries while using their smaller facilities and newly generated capital to make even better beer. Plus, craft breweries reap the benefits of mainstream exposure for the first time. If someone's palate is developed through megabrewery owned "gateway beers," it can be assumed that person will eventually graduate to supporting craft beer.

Here's a quick rundown of the most important craft acquisitions and an assessment of the deals' impact:

Goose Island Beer Company

In 2011, AB InBev acquired Chicago's Goose Island for $38.8 million in what was then the most ever paid for a craft brewery. The production of core beers like 312 Urban Wheat Ale, Honkers Ale and IPA were outsourced to Bud plants; sours, stouts and other experimental beers stayed in-house. The quality of their Bourbon County series has never been better, with a highly anticipated vanilla version of the stout returning to the lineup later this year.

Blue Point Brewery

The latest in the craft acquisition game, AB InBev bought Blue Point in 2013 for $24 million. The popular Long Island brewery had winning formulas in their Toasted Lager and Blueberry Ale. These two beers were already staples in the Northeast, especially for those new to craft beer. Although we haven't seen too many new releases yet, if new Mosaic Session Ale is any indication, their beer is only getting better.

The Craft Brew Alliance

Red Hook Ale Brewery from Washington State, Kona Brewing Company from Hawaii, Widmer Brothers Brewing Company from Oregon and Omission, which is brewed at Widmer, are all part of the Craft Brew Alliance. Ironically, the Brewers Association doesn't consider the beer company craft because AB InBev has a 32.3% stake in the company. Together they make up the ninth-largest beer company in the U.S. Even if they aren't "craft" anymore, no one can take away the historical significance of Red Hook and Widmer on craft beer in the early 80s, Kona in the 90s and most recently, Omission for their award-winning gluten-reduced beer in 2012. Honestly, they still make some damn good brews.

Terrapin Brewing Company

MillerCoors' "craft" arm Tenth & Blake also made an investment in 2011, buying up a minority stake in Athens, GA's Terrapin Brewing Company. Tenth & Blake owns less than 25% of the company, which still allows Terrapin to be considered a craft brewery under the Brewers Association guidelines. The extra capital from the investment was instrumental in expanding to meet increasing demands for their beer. As much as you might hate to admit it, fans of Terrapin's limited brews like their Cinnamon Roll'd Wake-n-Bake Oatmeal Stout are indebted to MillerCoors' investments for enabling the brewery to continue creating such amazing beer.

Jacob Leinenkugel Brewing Company

Leinenkugel's beer has remarkably been in Chippewa Falls, Wisconsin since 1867, but Miller has owned them since 1988. Best-known for their shandys and fruity summer wheat beers, Leinenkugels also makes some delicious dark and heavy brews under their Big Eddy line. Hate on the fruity beers all you want but Leini's fits nicely right next to Blue Moon, also a Tenth & Blake brand, to round out the best-selling portfolio of wheat beers in the country.

AC Golden Brewing Company

Founded in 2007, AC Golden might be considered as the first real craft style subsidiary of a major U.S. brewer founded in-house. Unlike the others on this list, it wasn't acquired but created on the success of brand favorite Blue Moon, a Belgian-style witbier, for further experimentation. The brewery's first release was a pretty generic pilsner, but AC Golden has since grown into an extremely well-regarded producer of sour beer. Their Framboise Noir is one of the finest raspberry sours in the world.

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