AB InBev seeks US$275 bln merger with SABMiller

September 17, 2015 08:44
AB InBev, maker of Budweiser, has a market share of 21 percent in 2014, while SABMiller holds about 15 percent. Photo: Bloomberg

Anheuser-Busch InBev wants to buy rival SABMiller to form a beer giant with a market value of US$275 billion.

The merger would be producing about a third of the world's beer, combining AB InBev's dominance of Latin America with SABMiller's control of Africa, both fast-growing markets, as well as their breweries in Asia, Reuters reported.

"The real attraction is Africa, where AB InBev has no presence, as well as some add-ons in Asia and Latin America," said Societe Generale analyst Andrew Holland.

AB InBev and other top brewers are trying to move into new markets as they look to shrug off weakness in North America and Europe, where consumers increasingly choose craft beers made by independent players or wine or spirits.

SABMiller, the world's No. 2 and maker of more than 200 beers including Peroni, Grolsch and Pilsner Urquell, said it had been informed that AB InBev intended to make an offer which it would have to do by Oct. 14 under British rules.

The global beer market share of AB InBev, maker of Budweiser, Stella Artois and Corona, was 21.1 percent in 2014, while SABMiller's was 15 percent, according to industry experts Plato Logic. Heineken is No. 3.

AB InBev, controlled by 3G Capital, a private equity fund run by a group of Brazilian investors, confirmed its approach. 3G, known for its focus on cost cuts at the expense of marketing, has previously orchestrated takeovers of Burger King, ketchup maker Heinz and Kraft Foods.

A source close to SAB said it was too early to say what it would do since no offer has been made.

"At this stage, we’re in wait and see mode," said the source.

A merger is likely to raise antitrust concerns in the United States and China.

AB InBev's approach follows a roughly 15 percent drop in SABMiller's share price since August.

"It's exactly the moment they've been waiting for," said Morningstar analyst Phil Gorham. "It makes sense financially for the first time in years."

AB InBev will have to pay at least 40 pounds (US$62) per SAB Miller share, and maybe as much as 45 pounds, according to analysts -- implying an overall price of up to US$130 billion, including SABMiller's debt.

That would make it the biggest M&A deal of 2015, already shaping up to be a record year since the 2008 financial crisis in terms of deal volume, and one the five largest takeovers since 1980.

Shares in SAB closed up 19.9 percent on Wednesday at 36.14 pounds, giving it a market capitalization of US$90 billion. AB InBev's were up 6.4 percent.

Rivals Heineken, Carlsberg and Diageo also rose on speculation SAB might seek another merger as a defense strategy, as it did last year when it offered to buy Heineken, but was rebuffed.

Since then it has combined its African soft drink bottler with that of Coca-Cola, and in recent weeks there has been speculation about it combining with Diageo or Australian drinks firm Coca-Cola Amatil.

AB InBev's controlling families own just over half of the company, while SABMiller's two top shareholders are cigarette maker Altria and the Santo Domingo family of Colombia.

Any merged group may also have to sell interests in China, where SABMiller's CR Snow joint venture with China Resources (00291.HK) is the market leader. Heineken, Carlsberg or China's Tsingtao could be potential buyers.

industry expert Plato Logic estimates that after disposals, the combined group could end up with a 28 percent global market share.

AB InBev is being advised by Lazard, while SABMiller is being advised by Robey Warshaw, JP Morgan and Morgan Stanley.

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