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Beer M&A Likely To Continue, But With Smaller-Scale Deals

By Steve Goldstein & William Spain Of FINANCIAL NEWS Heineken NV's (HEIA.AE) acquisition of Fomento Economico Mexicano, or Femsa (FMX), is only the lip of the mug when it comes to mergers and acquisitions in the global beer industry. The biggest was the 2008 deal that saw InBev take over Anheuser-Busch for more than $50 billion, as well as Heineken and Carlsberg's (CARL-A.KO) joint acquisition of Scottish & Newcastle for $15 billion. In 2005, a deal worth $3.3 billion created Molson Coors through the merger of Molson and Coors. And Molson Coors (TAP) got together with SABMiller PLC (SAB.JO) to form MillerCoors, which is a conglomeration of their U.S. interests. Don't expect the trend to stop, but the complexion of future deals is likely to change. Euro's post-payroll rally will be briefSlow euro-zone growth, rising fiscal concerns, as well as less reserve diversification by China should ensure that the euro's rally on lower U.S. rate hike expectations doesn't last long. Currently, the four top players control about 50% of the global market. And in his remarks, Heineken CEO Francois van Boxmeer said it is likely they will soon gobble up another 25% between them. See Heineken story. "The trend toward global consolidation is continuing and there is a significant amount more of it that will happen," said Benj Steinman, editor of Beer Marketer's Insights. Femsa accounts for only a couple of percentage points in the global market, he noted, so there is plenty of room for more acquisitions. Grupo Modelo (GMODELO.MX), Femsa's larger Mexican rival, is a natural takeover target for controlling shareholder Anheuser-Busch InBev (BUD), which holds slightly more than 50% of the maker of Corona. Tom Pirko, president of industry consultancy Bevmark, said "the harvesting is nowhere near done." This is especially so as companies look to emerging markets for growth. "The focus on future acquisitions will not be in doddering markets like Western Europe but in places like China, India and Brazil," he said. Among the potential buyers, he speculated, is spirits giant Diageo PLC (DEO), which already owns Guinness. "They believe in the beer business," Pirko noted. "And everybody knows they are looking." In addition, "the Japanese are becoming much more aggressive. We think that Kirin is going to try and do something shortly." However, finding significant, publicly traded brewers may be difficult from here. For one thing, many of the world's brewers have an element of family ownership. That doesn't make a deal insurmountable -- families control sizeable chunks of both Femsa and Heineken, after all -- but it does throw up obstacles. "There's nothing completely independent, and of scale, where a firm can waltz in and make a buy," said Simon Hales, analyst at Evolution Securities in London. A case in point: Turkey's Anadolu Efes is Europe's fifth-largest brewer, and a big player in Russia. But as Evolution's Hales points out, Efes is partly family controlled. Foster's Group (FGL.AU) is one brewer that's been the target of takeover talk. Molson Coors already holds a minority stake. In the U.S., the sole remaining publicly traded American-owned brewer is Boston Beer Co. (SAM), maker of the Sam Adams line. While its volume and sales growth has consistently outpaced the industry as a whole, it controls less than 1% of the domestic market and has never shown any interest in selling out to a conglomerate. From there, the pickings become scarce. "Everything is kind of protected now," said Evolution's Hales. Steve Goldstein is MarketWatch's London bureau chief. William Spain is a MarketWatch staff writer in Chicago.

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