 Hi guys, it's MJ the students actually and in this video I want to talk about one of the biggest mergers in the world's history it's between two beer Giants AB and SA Buries and What this video is going to be doing is we're going to be looking at mergers and acquisitions and the reasons why this company Has now swallowed up this company So two of the big reasons that these guys have given us is that they see this as a long-term growth Opportunity and they also see this as opportunities along the supply chain Before we can get into that. Let's just consider the two types of mergers that exist You have something known as a vertical merger. This is when a company purchases another company In its supply chain, so you either buy a pub or you buy a company that supplies Ingredients for beer that would be a vertical merger a Horizontal merger is what's happening in this case where the one company is purchasing its competitor Now we use the word merger But I don't think we should because this is more like an acquisition a merger is when two companies come together and They have like an equal stake in each other and they're very they're very happy This happened with say SA Buries and Millers and you can see Well, the clue is in their name. It's now SA B Miller Now that a B is buying SA B Miller We see that the name SA B Miller is going to fall away and that a B is actually going to be the big player in this So it's more of an acquisition Now, why do they want to acquire? SA B remember we spoke about long-term growth opportunities and opportunities on the supply line But the main reason is Africa So Africa is the new continent where all future business growth is going to be coming from But because of its political climate, it's very difficult to do business yet It's very difficult to establish businesses here Therefore for a B. It was a much better route to just acquire South African breweries And who've already got you know the infrastructure and offices and the sales channels set out They probably looked at the two case scenarios of competing directly and they saw you know There's quite a high cost of setting up in Africa. It'll be better for us and just to buy our competitor now some fun facts about a B is they make 46% of the global profits in beer But they only supply 27% of the global volume Now that is quite strange that those two numbers are quite different Either what it's meaning is that a these beers are just more expensive because they're benefiting from band brand power Or because a B is so large it can benefit from economies of scales This is one of the big benefits of a merger is that two companies come together. They can share certain Business operations and activities and therefore they can reduce costs And this is quite clear as we seeing that they have much higher stake of global profits than they do of the global volume Also what this will allow a B to do is put on a lot of pressure on the other businesses in the supply chain So before they would go to someone and say hey Hey, Mr. Pub or hey guys supplying us with ingredients. We wanted at this price That other company might say you know, that's too low We're actually want to do business with your competitor, but because a B is so big they have got a much stronger negotiation Stance in these things so they can you know negotiate a better better price And that's what we've seen why they have quite a nice higher profit percentage. But anyway, let's talk about SAB Miller This is a really awesome company. It's a South African company formed back in 1895 Traditionally it was made by a guy called Charles Gloss who was serving beer to miners and then he joined up with a guy called Frederick Mead and they just started getting bigger and bigger and bigger and they listed on the London Stock Exchange and the Johannesburg Stock Exchange One of the very first companies to to do so So they play quite a big role in South Africa's financial history. I'm gonna get later on this video I'm gonna talk more about cross listing But before I do that I just want to go through the journey of mergers and acquisitions that SAB Miller did before it's been acquired. So what one of the first things that they did was in 1995 they were thirsty for the European market so they purchased I think you say Dreyer, which is an Hungarian company and What this did was this put them into Europe So they bought this Hungary company and they were in Europe and they just kept expanding They would later go and buy Peroni from Italy. They would buy Grosche, I think they say pronounce it from the Netherlands They would then purchase Pulsner from the Czech Republic Czech Republic is one of the countries that consumes the most amount of beer per capita So that was a big acquisition and then I don't know how to pronounce this company Tiskey is that I don't know you say them from Poland So these were big acquisitions that they made They would then go to America and they would make a merger and we know this was a merger not an acquisition in the sense that the Name Miller from this American company now joined up with SAB so it was no longer SAB It was SAB Miller But this SAB Miller company was more of a merger with another company known as Molson Coors Which itself was a merger Molson was from Canada and Coors was from the USA SAB would also go into another sort of partnership with a Chinese beer known as snow Now I'd never heard of snow before but this is apparently the most popular beer in the world It gets drunk the most but that might just be because China has such a massive population But after this the deals didn't go through so smoothly starting in 2011 SAB made a move on Fosters the Australian beer However, it was a bit of a hostile takeover There was a little bit of you know didn't go down too smoothly And I don't think they acquired the brands in all territory So there was some sort of mix-up happening over there, but as a breweries at this time was getting was feeling scared They knew that they were going to be taken over by one of the bigger breweries So what they did in 2014 was they tried to take over Heineken, which is a Dutch company And the purpose for this was to defend itself from a takeover from AB Remember one of the reasons why companies merge is not just to get economies of scale But also to defend themselves from a takeover However, this merger did not go through But essay berries did not just give up then they did try and do a deal with coca-cola Where essay berries does a lot of the bottling and distribution of coke products in Africa And that was a very lucrative business But it wasn't enough to defend them against AB So AB have now purchased them Now AB itself is also a whole bunch of breweries that have joined together in the past It has Interbrew, which is a Belgium brewery that also had you know, Canadian and German companies like Bex Then there's also and Beth which is from Brazil part of this group as well as where the AB comes from I don't know how to pronounce it, but it's an American company And they big popular one is Budweiser Now this company is much bigger than essay breweries in the sense that they're making profits of eight billion Dollars. Okay. Now, that's more than double that of essay berries Essay berries only has profit of three point five billion Which is interesting because they're spending a hundred billion on a company that's only makes three point five billion in profit Now, why would you do that? Because this seems like quite a low rate of return However, there are ways to increase this AB are going to be doing a whole bunch of price cuts. There's rumors that they're going to be cutting a lot of jobs They're going to be streamlining the process. They're going to be benefiting from economies of scale So they can cut expenses which should increase profits or they're doing it like we said for Africa It's that high growth opportunity All the most sinister reason is maybe essay berries was under reporting its profit in order to avoid tax But that's a speculative position and maybe now at this deal. They'll be able to restructure it in such a way So maybe this what I'm basically saying is this profit should go up because three point five billion on a hundred billion purchase Seems quite low. It seems like quite a low rate of return, especially for such a high risk and complicated merger but Now that we've gone through the journey I want to look at selling known as cross listing because this is something that both of these companies have done SAB is listed on both the Johannesburg Stock Exchange and the London Stock Exchange Now, why have they done that? Back in the day South Africa was a much smaller from all still is a smaller country than Britain So there's this thing known as bonding bonding is when you cross list on a market with a better investor protection Than the jurisdiction of incorporation to protect investors by committing themselves voluntarily to a higher standard of corporate governance Basically what that's saying is this attracts investors who would otherwise be reluctant to invest So big investors might say, oh, you know Africa. It's quite risky I don't want to, you know get get my hands dirty with that But if the company shares are listed on the British British stock exchange, they're like, oh, yeah, we know the British stock exchange Yo, okay, this is a much better way to to invest So it can lower the cost of capital because there's more investors. There's more liquidity as there's less restrictions There is a bit of a disadvantage in the sense that you now have to have, you know, both of these listing Requirements, there's additional listing fees. There's more admin more reporting and all those type of things Now AB was the same they're listed both on the Brussels stock exchange as well as the American stock exchange and The interesting thing is that they're gonna well they have already now listed on the South African stock exchange So Carlos Brito one of the big boys at AB says that the reason they've done this is to demonstrate the company's commitment to Africa Which is central to the rationale of the deal when we spoke about that earlier He also says that this is a vote of confidence in South Africa as an investment destination And a little fun fact it only took 21 days to list which for such a big company is quite an achievement Now the reason why a big company might want to list on say a smaller markets exchange rate is Maybe for a little bit different reasons. This might be able to facilitate foreign acquisitions improve labor relations in foreign countries by introducing share and option plans for the foreign employees so now people who work for AB or Previously SAP can now get stock options in AB that they can easily sell on the South African stock exchange So it makes them happier and we see that it facilitates foreign acquisitions, which is what these guys are doing Now this is great for the South African stock exchange is sending a positive message You know, we've got one of the biggest companies in the world now listed on our stock exchange Which is great for people who want to have like a little bit of a rand hedge They can now go and buy shares in this company knowing that a lot of their profits are offshore It might mess up our our indices in the sense that you know with such a big company Remember I spoke about in earlier videos on benchmarks and indices how this will weaken diversification because it will dominate the index But one of the cool things though is that pension funds have a restriction on the amount of foreign capital That they can deploy but with AB being a foreign company listed on the JSC By then purchasing this foreign company. It doesn't mess up with their restriction. So it's a way to get around that rule Anyway, there's a lot of technical talk Let's maybe end off with a fun little political conspiracy, you know, this is a YouTube after all So while I was looking at these companies, I couldn't help but notice that SAB Miller has got Trevor manual on their board of directors Now Trevor manual for those who don't know was South Africa's financial minister Okay, so he was a politician Now he's on a hundred billion dollar corporations board. I don't like it when a politician Goes from being in politics to being in a corporate position like this because What he did is he had big influences on SAB Miller's operations while he was in this position in the sense that He oversaw things like the syntax added to alcohol and various other economic policies around the the sales of beer So it's almost like these corporations are saying to politicians be nice to us today Because tomorrow once you retired there is the opportunity for you to get a nice comfortable position on our board and That seems to be the case now. So we don't know like I said, it's a conspiracy We don't know if he did anything nice or special for SAB Miller's while he was in office But it is quite interesting that now that he's out of politics. He's now got this comfortable board position Although financial ministers of South Africa is a very sensitive topic at the moment, especially with Praveen Gordon Who those of you check out the news? It is quite a chaotic scene at the moment. So there is this mix or this model of Politics and finance which doesn't really sit too well But anyway, let me know what your guys thoughts are on this whole topic What do you think about the hundred billion dollar beer deal? What are your thoughts on cross-listing and mergers and acquisitions? Let me know in the comment section below and seeing that it's Halloween coming up I have made a little fun t-shirt That's celebrating a cheerio signs along with the whole theme of Halloween It's built on the the life model and we've now include zombies But yeah, that's all for me. Hope you guys enjoyed this video. Cheers