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AB InBev, SABMiller formalize $106 billion deal

November 11, 2015
Food & Drink

Anheuser-Busch InBev NV on Wednesday said it had formally agreed to buy SABMiller PLC for £69.8 billion ($105.5 billion), a deal that creates a brewing behemoth that will sell roughly one in three beers world-wide.

As part of that deal, SABMiller has agreed to sell its 58% share in the MillerCoors LLC joint venture to its partner, Molson Coors Brewing Co., which holds the remaining stake, as well as the Miller portfolio outside the U.S. for $12 billion. The divestiture, which is contingent on the completion of AB InBev’s acquisition of SABMiller, would catapult Molson into the position of the No. 2 brewer in the U.S., with a 25% market share second only to AB InBev’s 45% share.

The sale of MillerCoors—which sells brands including Miller Lite, Miller High Life and Blue Moon—was widely expected, and is seen as necessary for AB InBev to gain U.S. regulatory approval to buy SABMiller.

AB InBev plans to seek to have its shares listed on the Johannesburg Stock Exchange soon after Wednesday’s announcement. The combined company’s ordinary shares will be listed in Brussels, Johannesburg and Mexico. The American depositary shares will be listed in New York.

AB InBev said it expects to achieve at least $1.4 billion in pretax cost savings a year by the end of the fourth year after the deal is completed.

“By pooling our resources we would build one of the world’s leading consumer-products companies,” said AB InBev Chief Executive Carlos Brito. “Our joint portfolio of complementary global and local brands would provide more choices for beer drinkers in new and existing markets around the world.”

A tie-up between the two beer companies, if it gets the green light from regulators, would bring AB InBev brands such as Budweiser, Corona and Stella Artois together with SABMiller’s Grolsch and Peroni, and give the combined company a major presence in the U.S., China, Europe, Africa and Latin America. Together, AB InBev and SABMiller sell more than 30% of the world’s beer.

Exane BNP Paribas analyst Eamonn Ferry has said the combined company would be the world’s largest consumer staples by earnings before interest, taxes, depreciation and amortization and the third largest by sales, behind Procter & Gamble Co. and Nestlé SA. He estimates 2016 sales of $58 billion and Ebitda of $23 billion, including synergies.

The formal offer by AB InBev comes after weeks of back and forth between the two companies. SABMiller’s board announced Oct. 13 that it had agreed in principle to unanimously recommend to its shareholders AB InBev’s proposal to pay £44 a share to buy the London-based brewer, marking a 50% premium to its share price on Sept. 14, the day before media speculation about a potential deal emerged.

For 41.6% of stock, AB InBev is offering a partial-share alternative, essentially a combination of cash and unlisted stock, translating into a lower per-share price of £41.85. The alternative was designed to appeal to SABMiller’s largest shareholders, cigarette giant Altria Group Inc., which has a 27% stake in the brewer, and the BevCo Ltd. investment vehicle of Colombia’s Santo Domingo family, which holds a 14% stake.

Altria expects to get a 10.5% stake in the combined company and the Santo Domingo family would receive about a 6% stake, providing no other shareholders elect for the partial-share alternative. Altria said it would also receive $2.5 billion in cash and get two seats on the new company’s board, allowing it to continue to use the so-called equity accounting practices that have helped it to record profits from its beer interest on its income statements. The Santo Domingo family is expected receive one seat on the new company’s board.

SABMiller’s shares were up 2.7% in morning trading in London, while AB InBev pared early gains in Brussels to trade up just 0.2%.

AB InBev didn’t detail how it plans to gain regulatory approval in China, where analysts have said the deal could run into trouble with regulators. SABMiller’s joint venture with China Resources Enterprise Ltd. controls 23% of the market, according to Euromonitor, and produces the top-selling Snow brand. AB InBev had a 14% market share in China last year.

Molson Coors CEO Mark Hunter on Wednesday described the deal to buy the remainder of MillerCoors as “a game-changing opportunity for Molson Coors.” MillerCoors last year generated $7.85 billion in sales, nearly double Molson Coors’s net sales of $4.15 billion.

Molson Coors on Wednesday said it plans to fund the acquisition of the rest of Miller Coors and the Miller international business through cash on hand and proceeds from new debt and equity.

Despite the acquisition, Molson will have an uphill battle to retain customers. MillerCoors last week reported lower profit and revenue as beer drinkers spurned its low-cost brands, such as Milwaukee’s Best and Keystone Light, flocking to craft brews and cocktails.

Still, taking complete control of MillerCoors would allow Molson to cut costs from the joint venture by eliminating breweries along the U.S.-Canadian border, reducing staff and improving procurement, according to analysts.

Meanwhile, the Miller family of brands internationally—which includes Miller High Life, Miller Lite and Miller Genuine Draft—are particularly valuable to Molson in Canada, where its agreement with SABMiller to sell Miller brands recently came to an end, costing it more than $60 million in sales.

Molson Coors said the deal would add about $4.7 billion in incremental revenue and is expected to boost cash earnings by more than 25% in the first full year of operations before taking into account the benefits of cost synergies, which Molson estimates are at least $200 million a year after the fourth full year of the deal closing.

Source: Wall Street Journal

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