A Merger May Be Brewing Between Two of the World's Largest Beer Companies
Anheuser-Busch InBev has approached rival SABMiller about a takeover that would form a brewing colossus which makes around a third of the beer consumed globally.
Belgium's AB InBev - the world's biggest brewer - makes Budweiser, Stella Artois and Corona, while Britain-based SABMiller - the No. 2 player - owns Peroni, Grolsch and Pilsner Urquell beers.
A merged group would have a market value of around $275 billion, based on current prices, and would combine AB InBev's dominance of Latin America with SABMiller's strong presence in Africa, both fast-growing markets, as well as their breweries in Asia.
"The real attraction is Africa, where AB InBev has no presence, as well as some add-ons in Asia and Latin America," said Societe Generale beverage analyst Andrew Holland.
SABMiller said on Wednesday that AB InBev had informed it that it intended to make a proposal, but the UK-based firm added it did not have any further information about the terms. "The board of SABMiller will review and respond as appropriate to any proposal which might be made," it said.
AB InBev confirmed its approach to SABMiller's board. "There can be no certainty that this approach will result in an offer or agreement, or as to the terms," it said.
Shares in SAB were up 21.2 percent and AB InBev's were up 7.8 percent at 1230 GMT - while Heineken, Carlsberg and other rivals also rose .SX3P on hopes that SAB might seek another merger as a defense strategy.
AB InBev will have to pay at least 40 pounds ($62) per SAB Miller share, and maybe as much as 45 pounds, according to analysts - implying an overall price of up to $130 billion, including SABMiller's debt.
AB InBev's global beer market share was 21.1 percent in 2014 and SABMiller's 15 percent, according to industry experts Plato Logic.
AB InBev has targeted a net debt to core profit (EBITDA) ratio of 2 times, from around 2.5 currently. It is likely to reach that by 2016, the earliest any deal could realistically be completed, and so has room to borrow to fund a takeover.
When it bought Budweiser-maker Anheuser-Busch in 2008, it allowed the ratio to rise to beyond 5 times. If it was prepared to go that high again, it might be able to raise as much as $100 billion in debt.
AB InBev's controlling families own just over half of the company, while SABMiller's two top shareholders are cigarette maker Altria and the Santo Domingo family of Colombia.
If SABMiller chooses not be bought it could seek a combination with another brewer. However, its approach last year to family-controlled Heineken, the world's No.3 player, was rebuffed.
Speculation of such a mega-merger has often surfaced in a global market increasingly dominated by big multinationals.
AB InBev has proved the most active player, with its aggressive cost-cutting and expansion bringing beers such as Budweiser to a global audience.
One key area of concern to regulators would be the combined group's market share in the United States, where AB InBev has almost half the market and SABMiller's joint venture with Molson Coors just under 30 percent.
Any merged group may also have to sell interests in China, where SABMiller's CR Snow joint venture with China Resources is the market leader, as well as some in Latin America.
"Antitrust regulators in every country where the two companies are in the top three will question a merger," said Erik Gordon, professor at the University of Michigan's Ross School of Business.
"The costs that could be saved in the distribution operations are high - and the antitrust hurdles are higher."