BudMiller? Miller and Budweiser agree to merger

Posted at 8:54 AM, Oct 13, 2015
and last updated 2015-10-13 08:54:22-04

BRUSSELS — At the sixth time of asking, British-based brewer SABMiller accepted in principle Tuesday a 69 billion pound ($106 billion) takeover offer from Anheuser Busch InBev that will create the world's biggest beer company and bring together top U.S. brands Budweiser and Miller Genuine Draft.

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, 6 pounds more than its first offer almost a month ago. SABMiller's two biggest shareholders, Marlboro owner Altria and Colombia's BevCo, would get both cash and shares for their 41 percent stake.

AB InBev, which owns Budweiser among a range of top-selling brands, 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.

If the merger deal is formally agreed on, the combined company will control some 31 percent of beer sales around the globe. Given the size of the company, there are likely to be regulatory concerns, notably in the U.S. and China as authorities worry about the impact on consumer choice and competition.

The markets think that the deal is now very likely and SABMiller's shares were trading right near the bid price. In midmorning trading in London, they were up 8.8 percent at 39.42 pounds.

In statements, the two companies said the all-cash offer represents a premium of around 50 percent to SABMiller's share price on Sept. 14, the last trading day before renewed speculation of an approach from AB InBev emerged. For the cash and stock part, the premium is around 33 percent.

According to Tuesday's statements, AB InBev has agreed to pay $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 that any pact leading to a single company producing a third of the world's beer "is going to come under intense, potentially deal-ending, scrutiny from regulators."

The new company would dwarf the next biggest player, Heineken, which has 9 percent of the market. A combined company would have total annual sales of $73.3 billion.

Market leader AB InBev already has six of the world's largest beer brands. In addition to Budweiser, brands it owns include Stella Artois and Beck's. SABMiller, which is based in London, is the maker of rival brand Miller Genuine Draft, along with other names like Peroni and Milwaukee's Best.

Crucially for AB InBev, a deal would allow it to venture out more into the African and Australian markets where its might has yet to be felt in the way it is in Europe, North Africa and Asia.

The beer industry has been consolidating for the past decade as it seeks to gain more clout with suppliers, distributors and retailers.

"The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate," said Professor John Colley of Warwick Business School. "Micro brewers and their highly differentiated cask ales also continue to make progress."

AB InBev has a history of making acquisitions and will be looking to find cost savings from the deal as well more clout with suppliers through its size.

Colley says "expect substantial redundancies" over the coming year, potentially in head offices and country management teams.

"AB InBev has both a reputation and demonstrable track record for being able to effectively extract these savings," he said.