The World's Two Largest Brewers Have Agreed to Become One
The world's two biggest brewers agreed on Tuesday to create a company making almost a third of the world's beer after SABMiller accepted an offer worth more than $100 billion from larger rival Anheuser-Busch InBev.
The SABMiller board said it would give its blessing to a fifth proposal from its sole larger rival. 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.
After repeated rejections to its lower proposals, AB InBev said on Tuesday it was willing to pay 44 pounds in cash per SABMiller share, with an alternative for cash and shares set at a discount and limited to 41 percent of SABMiller shares.
SABMiller has indicated that its board would be prepared to accept the offer and has asked for a two-week extension to the UK-imposed deadline set for 1600 GMT on Wednesday for a formal bid. 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.
The new group would combine AB InBev's Budweiser, Stella Artois and Corona lagers with SABMiller's Peroni, Grolsch and Pilsner Urquell. AB InBev would add certain Latin American and Asian breweries to its already large presence and, crucially, enter Africa for the first time.
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.
For many observers this would be the final chapter of decades of consolidation in brewing. The big four, AB InBev, SABMiller, Heineken (HEIN.AS) and Carlsberg (CARLb.CO), 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 in the event the transaction fails due to the significant regulatory issues or because AB InBev shareholders do not back it.
The new offer unveiled on Tuesday surpasses a Monday proposal set at 43.50 pounds in cash and is 50 percent above SABMiller's shares on Sept 14, the day before speculation surfaced about an impending AB InBev approach.
The partial share alternative remains, designed for SABMiller's two main shareholders, cigarette-maker Altria and the BevCo company of Colombia's Santo Domingo family, who own 40.5 percent of the UK-based brewer.
Were they to accept the discounted alternative and all other shareholders took cash, the offer would be worth 68.5 billion pounds ($104 billion) at current prices.
SABMiller shares were up 9.0 percent at 1045 GMT, while AB InBev's were 1.7 percent higher.
"There's so much we don't know – we don't know what costs they'll take out, we don't know what they'll get for the asset sales that they'll have to make. But if you make reasonable assumptions about those, I think it's a pretty good price all around," said Morningstar analyst Phil Gorham.
MAJOR ANTITRUST HURDLES
There are significant antitrust hurdles to any combination, particularly in the United States, where the companies would have about 70 percent of the beer market.
A deal would likely result in Denver-based Molson Coors (TAP.N) acquiring SABMiller's 58 percent stake in their U.S. joint venture.
It would also force change in the wider beverage sector, with SABMiller a large distributor of Coca Cola while AB InBev has ties with rival PepsiCo (PEP.N).
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.
Morningstar's Gorham said that, of remaining assets, the beer business of Guinness and spirits maker Diageo looked particularly attractive, with Heineken a possible buyer.
Carlsberg's new management is likely to have its hands full with sorting out problems inRussia for some time.
"With all the major M&A targets now taken, and M&A so important to brewers’ growth, it raises the question of where next for global brewers as they bid to carry on growing," said Jeremy Cunnington, a drinks analyst at Euromonitor International.
($1 = 0.6562 pounds)