Monster brewer in the works
The next hurdle is to gain regulatory approval
THE WORLD’S two biggest brewers agreed yesterday to create a company making almost a third of the world’s beer after SABMiller received an improved offer worth more than $100 billion (R1.3 trillion) from larger rival Anheuser-Busch (AB) 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 open 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.
Previous proposals
Having rejecting 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 to SABMiller.
AB InBev said yesterday that it would now pay £44 (about R898) in cash per SABMiller share, with a partial share and cash alternative valued at £39.03 a share designed to appeal only to SABMiller’s two biggest shareholders, who together own almost 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 the 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 had asked for a two-week extension to the UK-imposed deadline set for the close of business today for a formal bid to be made. The new deadline is October 28.
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.
South Africa would need to assess the tax implications and could ‘in the extreme’ try to block the deal.
The parties have agreed that AB InBev will pay a break fee of $3bn 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 increases a proposal made on Monday to pay £43.50 in cash, which in turn was an increase from the £42.15 it put forward last week.
The £44 now accepted is 50 percent above SABMiller’s share price on September 14, the day before speculation surfaced about an impending AB InBev approach.
Top shareholders
The partial share alternative offer has also been improved, with an increase in the cash element raising the value to £39.03 a share from £37.49 last week, but remains designed to appeal only to Altria and SABMiller’s second-biggest shareholder, Colombia’s Santo Domingo family, which owns almost 14 percent of the UKbased brewer.
Together with the cash offer to other shareholders, the total price AB InBev is offering to pay for SABMiller is worth £68.5bn at current prices.
SABMiller shares closed up 9.97 percent at R805 on the JSE, after rising as much as 11.33 percent.
Neil Wilkinson, a 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.
Hurdles
However, significant regulatory hurdles lie ahead for the proposed merger, particularly in the US where the companies would have about 70 percent of the beer market.
In particular, the deal is expected to result in Denverbased Molson Coors acquiring SABMiller’s 58 percent stake in their US joint venture.
Analysts said the 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 In- Bev has ties with rival PepsiCo.
Bernstein Research beverage analyst Trevor Stirling said he rated the chances of the deal going through at 80 percent, with antitrust issues being the main risk. But he added that SABMiller would be unlikely to have accepted AB InBev’s approach if they knew of a major problem. – Reuters