ABI - SABMiller Rumors Heat Up Again, But With a Twist

FILED FEBRUARY 16, 2015

Dear Client:

On Sunday, the Financial Mail (a UK publication) posted an article which outlined the usual rumors that ABI is putting its ducks in a row to purchase SABMiller. But this article had a twist: The billionaire owners of 3G Capital (also largest shareholders of ABI) may bring together a "consortium" of groups to pay an "audacious" $116 billion for SABMiller.

The consortium would likely include ABI, and perhaps one of 3Gs other longtimes partners (like Warren Buffett). So the paper implies that it would not just be ABI-AmBev which would make the purchase alone.

"It is believed the plan is still in its early stages and no formal approach has been made to SABMiller," said the paper. "Rumours have been rife in recent months that Anheuser-Busch InBev has been circling SABMiller. Teaming up with 3G could allow it to sidestep competition hurdles to a deal."

2015 IS WHEN US BEER VOLUMES REBOUND

Chief economist for the NBWA, Lester Jones, foresees an "exciting" 2015 for the beer industry due to "more opportunity in the job market, rising wages, lower gas prices and an improving housing market."

Even though male unemployment rates are lower this month (5.8%) than a year ago (6.9%), per U.S. Bureau of Labor Statistics, "the underlying labor force participation rate for young males is still well below 90%." Therefore, Lester believes there's plenty of room to improve as "long run trends" point to the rate running in the "low- to mid-90s.

"The U.S. economy's ability to bring the core beer drinker back into the labor market will be pivotal to the success of the beer industry in 2015," he said.

Lester considers household formation to be the "basis for a fundamental shift in the U.S. beer business over the next few years." It's been a struggle for young adults to leave their parent's nest as of late, census data report that "approximately 14% of young adults live at home with their parents.

"Unable to find a job and burdened with student debt, young adults have not formed households at the same rate as in years past," said Lester. Although, he contended that "This is poised to change in 2015." Data from the Current Population Survey revealed an uptick of nearly two thousand households at the end of 2014, with almost two million new households formed in 2014.

As the demographic and economic landscape shift, so too will the beer market, according to Lester. "As young adults begin their careers, pay off student loans and move into their own homes, their purchasing behavior and buying habits will change and the beer business will change along with them," he said.

Lester hypothesized that the recent drop in retail sales may be due to the growth in the number of households. "Both December 2014 and January 2015 retail sales fell by almost 1%." He reasoned that "the new mortgage or rent becomes a new and additional expense that takes away from other expenditures."

Until tomorrow, Harry

"Every hero becomes a bore at last."
- Ralph Waldo Emerson


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