AB Inbev and SABMiller Merger: Synergy Effects in Network
AB Inbev and SABMiller are the two biggest beer brewing companies in the world, and they recently reported their interest in merging and becoming a multinational brewing company with more than 50% market share in the brewing industry. If the merger is successful, SABMiller and AB Inbev would provide more than 1/3 of the beers that are consumed worldwide. In the past, AB Inbev has been very active in acquiring other beer brands. For example, in 2004, AB Inbev acquired the maker of Stella Artois and in 2014, AB Inbev tried to acquire Heineken, the third biggest brewer in the world. AB Inbev has pursued acquisitive growth because the beer market is already saturated and the company has been benefiting from synergies.
According to McKinsey, a renowned consulting firm, the beer brewers are currently experiencing a major challenge because worldwide beer consumption has not been growing. Furthermore, major brewers are currently losing their market shares to craft beer companies. As a result, merging and seeking more cost efficiency could be a very strategic move for AB Inbev and SABMiller. In network standpoint, merging can expand their presence in new markets and also increase production and sales efficiency for both companies.
In global markets where only one of them has a dominant position, sharing their networks and linking their sales and production facilities can lead to a greater profit upside for the firm with less market share in the particular market. For example, SABMiller has a strong presence in Africa with about 1/3 of its profit coming from Africa, but AB Inbev’s presence in Afria is much weaker. Based on triadic closure, because SABMiller has a strong tie with many African markets, linking SABMiller with AB Inbev will help establish a connection between various African markets and AB Inbev. In a more detailed perspective, SABMiller has better sales capabilities in Africa with stronger connections to business opportunities. Introducing AB Inbev to those business opportunities can help AB Inbev to increase its sales in Africa. Because SABMiller has strong presence in Colombia and Peru, the same strategy can help AB Inbev in South American markets.
In terms of cost efficiency, the merger can increase overlaps in the distribution networks of the two companies and help them increase in their profit margins. In a sales network, having more customer connections could be beneficial to SABMiller and AB Inbev, but in distribution network, having less distribution channels that are required to deliver the same amount of products could decrease the cost and increase the profit margin for SABMiller and AB Inbev. After the merger, the two companies can map out their distribution networks and examine the overlapping distribution facilities. Choosing to use only one of the facilities that overlap can reduce cost for both firms. The number of overlaps in distribution facilities that serve the same market or region can be an indicator of potential in cost reductions.
Source: http://www.economist.com/news/business/21665074-ab-inbev-may-combine-sabmiller-flat-market-big-beer-brands-beer-monster