SABMiller & Fosters: A Huge Deal in the Beer Business (BUD, SBMRY, MO, TAP, SAM)

Everything about Australia’s Foster’s Lager seems big — starting with the brew’s over-sized can. Today the beer’s maker, Foster’s Group Ltd., agreed to be acquired by the world’s second largest brewer, SABMiller PLC (OTC: SBMRY) for about $10.2 billion. That’s also big. Only Anheuser-Busch InBev (NYSE: BUD) is larger.

The acquisition should also give a boost to Altria Group Inc. (NYSE: MO), which owns a 27.1% stake in SABMiller from Altria’s sale of Miller Brewing to SAB in 2002. Molson-Coors Brewing Co. (NYSE: TAP) and Boston Beer Co. Inc. (NYSE: SAM) are both much smaller than either InBev or SABMiller, and could be additional targets for the Big Two as the beer business continues to consolidate.

SABMiller derives about 80% of its revenue from emerging markets, with China’s Snow brand the largest seller in the world and China the biggest consuming nation in the world. US consumption was about half that, but still the second-largest beer consumer.

Chinese beer drinkers downed nearly 12 billion gallons of brew last year, topping the world beer rankings. InBev’s Bud Light and Budweiser and Brazilian brew Skol followed.

But the outlook for beer in emerging markets is getting softer, and SABMiller wanted to make an acquisition in a developed market, and Foster’s is the largest brewer in Australia. Foster’s also has a significant presence in Asia, so SABMiller gets to increase its footprint on two continents.

US beer consumption is growing in the craft beer and high-priced beer segments, and imported beers have also seen increases. Import sales remain about -11% below pre-2008 levels. Overall, though, there are some big losers in beer sales.

Beer industry growth has been increasing since the very slow days of 2009, when growth was a meager 0.4%. In 2010 that figure grew to 1.6%, and is expected to reach 2.5% this year. Europe and the US contribute about 1% growth each, and the emerging nations of Asia, Africa, and the Middle East contribute up to 5% of the growth.

Brewers also got a break this year on barley prices. The cold wet spring in North America and some of Europe delayed corn planting long enough that some farmers planted barley because prices at the time were over $350/metric ton and expected to rise. But the strong crop yields have pushed barley prices down below $250/metric ton in Canada, one of the largest barley growing regions in the world.

Foster’s fought off a $9.2 billion offer from SABMiller earlier this year, and the company’s patience paid off to the tune of about $1 billion. The deal looks like a winner for both sides.

Paul Ausick