World's biggest beer makers agree to join forces
BRUSSELS/LONDON - The world's two biggest brewers agreed on Tuesday to create a company making almost a third of the world's beer after SABMiller received an improved offer worth more than $100 billion from larger rival Anheuser-Busch InBev.
If it goes through, the deal would rank in the top five mergers in corporate history and be the largest takeover of a UK company.
The new group would bring together AB InBev's Budweiser, Stella Artois and Corona brands with SABMiller's Peroni, Grolsch and Pilsner Urquell. For AB InBev it would also add more breweries in Latin America and Asia and crucially opens up new growth markets in Africa.
Africa is expected to see a sharp jump in the legal drinking age population in coming years and a fast-growing middle class more willing to switch to lagers and ales from illegal brews.
Having rejected four previous proposals, the breakthrough came on Monday evening in the Mayfair offices of boutique firm Robey Warshaw, when AB InBev Chairman Olivier Goudet agreed to push up the price to a level acceptable for SABMiller.
AB InBev said on Tuesday it would now pay 44 pounds in cash per SABMiller share, with a partial share and cash alternative valued at 39.03 pounds a share designed to appeal only to SABMiller's two biggest shareholders, who together own nearly 41 percent of the company.
The biggest shareholder, cigarette-maker Altria with a 26.6 percent stake, later said it was pleased with the deal, but South Africa said it would need to assess tax implications and could "in the extreme" try to block it.
SABMiller said its board was prepared in principle to recommend the main cash offer to shareholders and has asked for a two-week extension to the UK-imposed deadline set for Wednesday for a formal bid to be made. The new deadline is Oct. 28.
"We have written extensively on the attractions of (an ABI/SAB combination) since 2011 and continue to see major long-term benefits for ABI shareholders now," said Canaccord Genuity analysts.
For many observers this would be the final chapter of decades of consolidation in brewing. The big four, AB InBev, SABMiller, Heineken and Carlsberg, are already present across the globe and brewing more than half of the world's beer.
The parties have agreed that AB InBev would pay a break fee of $3 billion to SABMiller if the deal falls through due to the significant regulatory issues or because AB InBev shareholders do not back it.
The new offer unveiled on Tuesday increases a proposal made on Monday to pay 43.50 pounds in cash, which in turn was an increase from the 42.15 pounds it put forward last week.
The 44 pounds now accepted is 50 percent above SABMiller's share price on Sept 14, the day before speculation surfaced about an impending AB InBev approach.
The partial share alternative offer has also been improved, with an increase in the cash element raising the value to 39.03 pounds a share from 37.49 pounds last week, but remains designed to appeal only to Altria and SABMiller's second-biggest shareholder, Colombia's Santo Domingo family, which owns nearly 14 percent of the UK-based brewer.
Together with the cash offer to other shareholders, the total price AB InBev is offering to pay for SABMiller is worth 68.5 billion pounds ($104.2 billion) at current prices.
SABMiller shares were up 9.3 percent at 39.60 pounds early Tuesday, when AB InBev's share price was up 1.8 percent at 100.10 euros.
Neil Wilkinson, senior equities fund manager at Royal London Asset Management and an AB InBev investor, said he was pleased to see AB InBev finally closing in on a deal it clearly wanted.
"Given its outstanding track record in executing prior transactions, we expect large cost synergies and rapid deleveraging of the balance sheet will allow further transactions a few years down the line, which will enable AB InBev to perpetuate its growth story," he said.
AB InBev has a reputation for fierce cost-cutting, but will need to be at its sharpest to extract savings to justify the price as well as pushing its global brands into new markets.
MAJOR ANTITRUST HURDLES
However, significant regulatory hurdles lie ahead for the proposed merger, particularly in the United States where the companies would have about 70 percent of the beer market.
In particular the deal is expected to result in Denver-based Molson Coors acquiring SABMiller's 58 percent stake in their U.S. joint venture.
Analyst say merged group might also have to sell interests in China, where SABMiller's CR Snow joint venture with China Resources Enterprise is the market leader.
It could also bring change in the soft drinks sector, where SABMiller is a large distributor for Coca Cola while AB InBev has ties with rival PepsiCo.
Bernstein Research beverage analyst Trevor Stirling said that he rated the chances of the deal going through at 80 percent, with antitrust issues being the main risk.
"There is a chance that due diligence throws up something nasty," he said, but added that SABMiller would be unlikely to have accepted AB InBev's approach if they knew of a major problem.