Geneva – Anheuser-Busch (AB) InBev has agreed to buy SABMiller [JSE:SAB] for £68bn (about R1.4trn), raising its bid to clinch a record industry deal that brings one out of every three beers sold worldwide under a single company.
NOW READ: JSE cheers historic SABMiller deal
The Budweiser maker offered 4 400 pence a share in cash for a majority of the shares in its nearest competitor, gaining brands such as Peroni and Grolsch, and giving it control of about half the industry’s profit. The price is 46% above SABMiller’s closing value on September 15, the day before the companies disclosed they were in contact about a potential bid.
“We think that this is good value for SAB,” said Alicia Forry, an analyst at Canaccord Genuity. “It’s great that they’ve come to a point where the valuation is agreed, and we expect ABI in due course to make a firm offer.”
After years of speculation, the deal has been hastened by the impact of slowing economies in the emerging markets of China and Brazil. A 20% drop in SABMiller shares in the months preceding AB InBev’s approach and the prospect of an end to cheap credit also served as a catalyst to a takeover.
The agreement, which is tentative, caps more than two weeks of back- and-forth negotiations over the price. SABMiller said its board is prepared to recommend it.
Under UK takeover rules, AB InBev has until 17:00 on Wednesday to make a formal offer, but the companies have agreed to seek an extension of that by two weeks, to 17:00 London time on October 28, to have time to formalise the agreement. AB InBev agreed to pay a fee of $3bn if it fails to get approval from regulators and shareholders for the purchase. The new company will be incorporated in Belgium.
SABMiller shares traded at £39.47 at 12:22 in London and R809 on the JSE in South Africa at 13:30.
SABMiller spurned previous proposals, including one AB InBev made public on October 7 that valued the company at about £65.2bn.
SABMiller’s two largest shareholders, Altria Group and Bevco, can receive cash and stock valued at £39.03 a share for their stakes, which account for 41% of the company.
Misplaced fear that the deal won’t happen
The discount to the proposed offer price reflects “a residual, but misplaced fear that the deal won’t happen,” said Andrew Holland, an analyst at Societe Generale.
For AB InBev CEO Carlos Brito, the deal would cap a deal making spree that has seen the brewer spend about R1.2trn on transactions over the last 10 years. It’s an acquisition the company may need as its growth is set to slow over the next five years, estimates compiled by Bloomberg show.
The takeover would be the largest in UK history, surpassing this year’s £47bn purchase of BG Group by Royal Dutch Shell. It would be the biggest deal of 2015, already a bumper year for deal making, according to data compiled by Bloomberg.
AB InBev agreed to pay a fee of $3bn if it fails to get approval from regulators and shareholders for the purchase. The new company will be incorporated in Belgium.
SABMiller’s two largest shareholders, Altria Group and Bevco, can receive cash and stock valued at £39.03 a share for their stakes, which account for 41% of the company. They won’t be able to sell the shares for five years, and will have the right to nominate directors.
“SAB did a great job playing poker and driving the price higher,” said Peter Braendle, who manages about $450 million in stocks, including SABMiller and AB InBev, at Zuercher Kantonalbank in Zurich. “ABI will do everything in its power to make this a success.”
AB InBev’s challenges
Brito still faces some challenges to get the deal done:
– Antitrust: Stakes in MillerCoors joint venture in US and CR Snow in China may need to be sold
– Financing: AB InBev is working with about 10 banks to arrange as much as $70bn in deal funding
– Synergies: Analysts say they’re limited compared with prior transactions based on savings as a percentage of sales
Together, AB InBev and SABMiller will be the world’s largest consumer-staples company by earnings, according to Exane BNP Paribas analysts, who estimate the combined company will make $25bn before interest, tax, depreciation and amortization in 2016.
The enlarged brewer will have the number one or two positions in 24 of the world’s 30 biggest beer markets, they estimate.
A potential combination of the beer makers had been seen as likely for years as they have limited geographical overlap and aren’t controlled by a family foundation like their main competitors, Heineken and Carlsberg A/S.
AB InBev wants SABMiller’s exposure to emerging markets in Latin America and Africa.
… read more on — fin24