Consumer Products

A Surprising Reason Why Anheuser and SABMiller Just Merged

Beer drinkers everywhere may now have their loyalties confused as Anheuser-Busch Inbev S.A./N.V. (NYSE: BUD) and SABMiller have announced that they are merging into one company in a giant $107 billion deal. Miller and Budweiser, now combined, will control about 30% of global beer sales. The question is why is this happening? What advantages does it give to either company?

It won’t give them any new advantage over the smaller microbreweries that have been eating into mainstream beer sales. Investors will have a hard time seeing how a company that already encompasses 30% of the global market can grow beyond that. Could it be that executives on both sides simply wanted to see both stocks turn into a dividend play? That sounds a bit of a stretch.

There is one advantage though that combined power does give a combined Anheuser/Miller megabeer colossus — that of lobbying. According to the International Business Times, the biggest players in the anti-marijuana legalization movement are Big Pharma, Big Beer, private prisons and police unions. Private prisons, police unions and Big Pharma are obvious because legalized cannabis means fewer prison sentences, fewer arrests and cheap medical cannabis that will eat into Big Pharma earnings. Big Beer, like Anheuser/Miller, has done its own marketing research and determined that legalized marijuana means fewer beer sales.

With both main Democratic presidential candidates campaigning for liberalizing marijuana laws, both Anheuser and SABMiller understand it is only a matter of time before marijuana use becomes much more widespread. Therefore, it could be more advantageous to merge now rather than later. Hillary Clinton favors moving cannabis from Schedule 1 to Schedule 2, placing it on par with prescription painkillers. Bernie Sanders favors removing marijuana from federal scheduling completely, in effect legalizing it on a federal level.

While extremely low interest rates and an imminent Federal Reserve rate hike may have given the financial incentive for this deal, long term a combined Anheuser/Miller will be able to focus its lobbying efforts much more efficiently in order to stall one of the biggest and most palpable threats to its revenue base. And if those efforts fail, it may have been the right move to merge now rather than after the first shot is fired in the war between cannabis and alcohol.

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