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Anheuser-Busch InBev strikes $106 Billion takeover of SABMiller

October 13, 2015
Consumer Packaged Goods

Anheuser-Busch InBev , the owner of Budweiser , Stella Artois and Corona, is poised to dramatically expand its stable of brands and become the dominant player in the global beer market after reaching an agreement to buy SABMiller , owner of Miller Lite, Peroni and Fosters, Tuesday morning.

After weeks of public negotiation AB InBev said SABMiller has agreed to a $67 a share takeover, valuing the London-based brewer at $106 billion, making for the biggest beer acquisition on record and one of the largest in corporate history.

Were the proposed deal to close it would create a combined company with revenues of $64 billion and EBITDA of $24 billion, surpassing Coca-Cola KO -2.44% in sales and roughly matching the revenues of Unilever and PepsiCo PEP -1.02%. Only Nestle and Procter & Gamble PG -1.37% would have significantly greater sales than the merged company in the consumer products space, AB InBev estimated in a presentation last week. A merger would also increase AB InBev’s exposure in emerging markets, particularly Africa, where gross domestic product is expected grow steadily in coming years.

“Given the largely complementary geographical footprints and brand portfolios of AB InBev and SABMiller, the combined group would have operations in virtually every major beer market, including key emerging regions with strong growth prospects such as Africa, Asia, and Central and South America,” the company said a week ago.

Since then, AB InBev has been able to get SABMiller to the negotiating table after a series of unsolicited bids were rejected.

AB InBev first disclosed it had approached SAB Miller about a merger in September. Initially, AB InBev offered $57 a share before making four bid increases in recent weeks, culminating in its Tuesday’s offer at $67. That price represents a 50% premium to SABMiller’s share price before reports of a possible merger emerged.

SABMiller shareholders also have the option of receiving some stock during the takeover. AB InBev said it would offer a partial share alternative to its cash proposal of 0.483969 unlisted shares and GBP 3.7788 in cash for each SABMiller share, equivalent to a value of GBP 39.03 per SABMiller share on Oct. 12, or a 33% premium.

Although AB InBev’s increased pricetag may have drawn SABMiller to the negotiating table, its agreement on a multi-billion dollar breakup fee in the event shareholders or regulators shoot down a deal may have been more important. InBev has agreed to a reverse break fee of $3 billion payable to SABMiller in the event that the merger falls through. One likely antitrust concession includes a breakup of SABMiller’s joint venture with MolsonCoors, MillerCoors.

Alongside antitrust the deal is subject to a lengthy list of closing conditions, and AB InBev plan to further disclose the financing commitments underpinning the deal as well as financial targets for the future business in the coming days.

About Tuesday’s agreement in principal AB InBev said, “the Board of SABMiller has indicated to AB InBev that it would be prepared unanimously to recommend the all-cash offer of GBP 44.00 per SABMiller share to SABMiller shareholders, subject to their fiduciary duties and satisfactory resolution of the other terms and conditions of the Possible Offer.

For beer drinkers, a merger would cap an era of consolidation that’s created a handful of dominant industry players.

In addition to heavy acquirers AB InBev and SABMiller, other conglomerates including MolsonCoors, Heineken and spirits giant Diageo have all bought prominent beer brands in recent years. Nonetheless, consolidation comes as many beer drinkers in the United States and Europe shift their attention to craft breweries that are independent of global conglomerates. AB InBev picks up few craft brands with SABMiller, but the deal is more importantly a geography play as it expects to gain a significant toehold in high growth African and Asian markets.

The company, controlled by Brazilian private equity firm 3G Capital, also sees itself as a consumer products company comparable to P&G and Unilever. With no more beer mega-deals on the horizon, it’s anyone’s guess as to what AB InBev, a serial acquirer, might buy next.

By Antoine Gara

Source: Forbes

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