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The biggest beer merger ever was never supposed to happen

Anheuser-Busch InBev (BUD), the biggest beer behemoth in the world, will at last get a prize it has wanted for many years, after SABMiller (SAB.L) shareholders backed a $100 billion takeover offer on Wednesday. It was the final step needed for the deal to happen.

It is a deal that industry insiders doubted would ever actually go through.

Once AB InBev swallows up SABMiller, the combined company will generate $65 billion in annual revenue; it will control nearly more than a quarter of the world’s beer volume; and its beer portfolio will include marquee brands like Budweiser, Corona, Stella Artois, Beck’s, Leffe, Pilsner Urquell, Foster’s, and Blue Moon, all under one roof.

Following US Department of Justice approval in July, the Brewers Association, an advocacy group that represents craft brewers, posted a statement on the deal that read in part, “We continue to believe that the merger of the world’s two largest brewers is bad for both the beer industry and consumers.” Many craft beer drinkers on Twitter pointed out that one in every four beers in the world will be AB InBev-owned. “Support real craft beer now more than ever,” said one.

How AB InBev got so big

The average beer drinker likely doesn’t know the history of mergers and buyouts that created the world’s leading beer giant. It began in 2004 when Interbrew (a combination of Belgian and Canadian brewers, formed in 1988) merged with AmBev (a combination of Brazilian and Argentinian brewers, formed in 1999) to form InBev. The resulting company was headquartered in Leuven, Belgium (home of the Stella Artois brewery) and still is today.

In 2008, InBev bought out Anheuser-Busch (maker of Budweiser) to form Anheuser-Busch InBev. In 2012, AB InBev got bigger when it acquired Grupo Modelo. It did not change the parent name, and will not change it after it acquires SABMiller, which has its roots in South Africa but is headquartered in London. (If the company kept trying to pay homage to every big brewer it has gobbled up, it would end up with a comically unwieldy name like Grupo Anheuser-Busch InBev Miller.)

After AB InBev pulled off the deal with Grupo Modelo (by divesting the rights to Corona and Modelo in America), a former Anheuser-Busch employee, speaking on condition of anonymity, told me, “The problem now is, where else can they go? There are not many more huge breweries to buy, and in the US they are at the limit. The next step I suppose would be to acquire SABMiller, but that would be a real difficult feat.”

The merger with SABMiller will be the fourth-largest corporate merger in history, and it will create the fifth-largest public consumer brand in the world. The combined company will have a market cap of $245 billion, and be more than twice as big as its nearest competitor, Heineken.

What AB InBev had to give up to get SABMiller

Three years ago, speaking to me for a Fortune profile of AB InBev’s M&A-hungry CEO Carlos Brito (pictured above), beer industry consultant Tom Pirko of Bevmark said it was no secret that Brito wanted SABMiller. But Pirko remarked, “They would never get away with it. I think the DOJ would block it. I don’t see how it’s possible without divesting a significant portion of their portfolio.”

So that’s what Brito did. To appease regulators, AB InBev agreed to sell off a number of brands (pending completion of the merger), most notably SABMiller’s piece of the Miller and Coors beer brands in the US. In fact, AB InBev divested the rights to all SABMiller beers in the US.

If that sounds like a major concession to make, keep in mind that this deal was never really about America anyway, but international markets. Even the purchase of Anheuser-Busch, an American staple and stronghold of St. Louis, wasn’t about the US market, as Pirko explained in 2013: “They didn’t buy AB for the American market. The strategy is to imprint the Budweiser brand in China. Make it the Coca-Cola of beers.”

Within the last year, AB InBev has agreed: to sell SABMiller’s stake in MillerCoors, the US joint venture between SABMiller and Molson Coors, back to Molson Coors; to sell SABMiller’s stake in Snow, the leading beer in China, to China Resources Beer; and to sell Grolsch, Peroni, and Meantime to Asahi Group Holdings in Japan. AB InBev has also offered to sell off SABMiller’s holdings in Eastern Europe, though that has not been finalized yet.

AB InBev also promised tobacco giant Altria, the parent company of Philip Morris USA and the largest stakeholder (27%) in SABMiller, a 10.5% stake in the combined company (and two board seats) plus $2.5 billion in cash. Altria stock (MO) jumped nearly 2% on Wednesday on the terms of the deal.

What happens next? For employees of SABMiller brands: layoffs, austerity, and a change in corporate culture. For AB InBev shareholders: profit. This is what 3G Capital, the Brazilian investment firm that controls AB InBev’s board, does when it takes companies over.

When InBev took over Anheuser-Busch, it cut 1,400 jobs from the American company and replaced many of the executives in St. Louis with executives from AmBev in Brazil, including Brito, still the CEO today. When Heinz bought Kraft last year, backed by 3G and Warren Buffett, the combined company cut more than 5,000 jobs by the end of the year.

AB InBev’s offer to SABMiller of 45 pounds per share, which it raised from 44 pounds after the British pound tumbled due to Brexit, is still “a steal,” some argue. And make no mistake: cutthroat AB InBev, led by cutthroat operator Brito, will optimize costs and extract mega value.

While gobbling up SABMiller makes AB InBev more powerful, it required sacrifices. For its gains in Africa and South America, the company will cut its US revenues by 10%, but that is seen as worth it because the US market is increasingly disrupted by craft beer.

Unless something steps in the way, AB InBev expects to close the deal Oct. 10, and will de-list SABMiller on Oct. 11.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

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