Top 2 beer makers to merge
Regulators could block SABMiller, AB InBev deal or force Molson sale
The world’s top two beer makers agreed Tuesday to join forces to create a company that would control nearly a third of the global market and bring together leading U.S. brands Budweiser and Miller Genuine Draft.
After turning down five offers, U.K.-based brewer SABMiller accepted in principle an improved takeover bid worth 69 billion pounds (US$106 billion) from Anheuser Busch InBev, which along with Budweiser makes Corona, Stella Artois and Beck’s.
However, the sheer scale of the deal is likely to run into resistance from regulators, notably in the U.S. and China, amid concerns it could stifle competition and decrease choice for consumers. They could force the companies to sell some brands — such as either the Budweiser or Miller brands — or its U.S. joint venture with Molson Coors.
Having dismissed previous proposals over the past few weeks as undervaluing the company, the directors of SABMiller unanimously agreed to an offer that values each SABMiller share at 44 pounds. SABMiller’s two biggest shareholders, Marlboro owner Altria and Colombia’s BevCo would get both cash and shares for their combined 41 per cent stake.
AB InBev has until Oct. 28 to come up with a formal offer if U.K. regulators grant an extension to the takeover talks. In that time, the two sides will work on the terms and conditions of the takeover offer as well as the financing of the deal.
The markets think the deal is now very likely and SABMiller’s shares were trading close to the bid price.
News of the merger talks have helped bump up shares of rival beer conglomerate Molson Coors Brewing. Its shares set a new alltime high of US$89 in early trading in New York. They closed at US$86.58, up US$7.83 or 9.94 per cent.
Industry analysts expect U.S. anti-trust regulators will require the sale of SABMiller’s stake in the MillerCoors joint venture that sells Miller and Coors products. Molson Coors owns 42 per cent of the joint venture and would go to 50 per cent with a change in control. Under a 2008 agreement, it then has the right to a first and last offer to purchase the remaining 50 per cent interest if the new brewing giant is forced to unload it.
Analyst Brittany Weissman of Edward Jones said Molson Coors stock got a bounce from the likelihood of that happening, since it is unlikely that regulators would allow the new company to control 70 per cent of the U.S. market.
“There’s a possibility you could see that (the sale of MillerCoors) as part of a final agreement,” she said in an interview.
In statements, AB InBev and SABMiller said Tuesday the new all-cash offer represents a premium of around 50 per cent to SABMiller’s share price on Sept. 14, the last trading day before renewed speculation of an approach from AB InBev emerged.
According to Tuesday’s statements, AB InBev has agreed to pay US$3 billion to SABMiller if the deal fails to close because of failure to get regulatory approval or the clearance of AB InBev shareholders.
Connor Campbell, a financial analyst at Spreadex, cautioned that a deal “is going to come under intense, potentially deal-ending, scrutiny from regulators.”
The new company would have annual sales of US$73.3 billion and its market share of 31 per cent would dwarf that of its next biggest competitor, Heineken, with nine per cent.
Market leader AB InBev already has six of the world’s largest beer brands. In Canada, it owns the Labatt’s business which was acquired in 1995. SABMiller, which is based in London, has Peroni, Grolsch and Milwaukee’s Best among its stable of beers.
For AB InBev, a deal would allow it to bolster its presence in Africa and Australia, where it is not as dominant as it currently is in Europe, North Africa and Asia.