By Martinne Geller
LONDON (Reuters) - Brewers Anheuser-Busch InBev (BR:ABI) and Anadolu Efes (IS:AEFES) have agreed to merge their operations in Russia and Ukraine in an attempt to strengthen their position in a declining market.
Russians are among the world's biggest drinkers of alcohol, but beer sales, which grew rapidly after 2000 on the back of investment from international players, have tumbled since 2008 when the government began taking steps to curb drinking, such as raising taxes and limiting sales.
AB InBev, the world's largest brewer and home to brands including Budweiser and Stella Artois, announced the non-binding deal on Wednesday without disclosing financial terms. AB InBev owns 24 percent of Efes, Turkey's biggest brewer, inheriting it from SABMiller (LON:SAB), which it acquired last year.
The Belgium-based brewer said the 50-50 merger would result in a new company called AB InBev-Efes, which will be fully consolidated in the financial accounts of Efes. AB InBev will treat the business as an equity stake.
Shares of Anadolu Efes were up 2 percent in Istanbul at 0910 GMT, as the addition of AB InBev's 12 percent share of the Russian market stands to make Efes into a much stronger No. 2 player behind market leader Carlsberg (CO:CARLb). Efes already has 16 percent of the market, which Euromonitor says has a retail value of $15 billion. It has forecast that to shrink to $14.1 billion by 2021.
"We should not down play the competitive significance of today's development," Mirabaud analyst Jonathan Fyfe said in a note. He said Efes has been outperforming the market for some time, and that combined revenues should get a further boost from the increased distribution that Efes' network can give to AB InBev's international premium brands.
He also said that having fewer competitors in the Russian market will lead to "a more rational pricing environment".
AB InBev shares were down 1 percent in Brussels, while Carlsberg shares were down 0.6 percent in Copenhagen.
Aside from saying the combination would strengthen the competitive position of both companies' brands and create potential for further growth, AB InBev said in a statement the deal enhanced its relationship with Efes and the value of its stake, now worth around 3 billion Turkish lira (650.74 million pounds).
Analysts have speculated over whether AB InBev will keep the stake in the long term.
Both brewers will have equal representation on the board of the new company, but Tuncay Ozilhan, chairman of Anadolu Group and Anadolu Efes, will be its chairman.
The deal is expected to close in the first half of 2018.