LONDON – Anheuser-Busch InBev agreed to buy SABMiller for almost $106 billion to clinch a record industry deal after several rejections, creating a brewer that will account for a third of all beer sales globally.
The brewer of Budweiser will pay $67.32 a share in cash for a majority of the shares in its nearest competitor, the companies said in a statement Tuesday, gaining brands such as Peroni and Grolsch and giving it control of about half the industry’s profit. SABMiller shares rose as much as 9.4 percent to $60.62 in London.
“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 percent 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.
SABMiller shares traded at 39.37 pounds, equivalent to $60.24, at 9:56 a.m. in London, about 11 percent below the value of the proposed offer. The discount reflects “a residual, but misplaced fear that the deal won’t happen,” said Andrew Holland, an analyst at Societe Generale. AB InBev rose 1.2 percent to 99.51 euros in Brussels.
For AB InBev Chief Executive Officer Carlos Brito, the deal would cap a dealmaking spree that has seen the brewer spend about $90 billion 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 British history.
AB InBev and SABMiller have agreed to seek a two-week extension to Wednesday’s deadline for a formal offer, giving them until 5 p.m. London time on Oct. 28 to formalize the agreement. AB InBev agreed to pay a fee of $3 billion 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 $59.72 a share for their stakes, which account for 41 percent of the company. They won’t be able to sell the shares for five years, and will have the right to nominate directors.
The offer price is 50 percent above the closing value on Sept. 14, the day before takeover speculation resurfaced. The British brewer spurned previous proposals, including one AB InBev made public on Oct. 7 that valued the company at about $99.76 billion.
“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.” Brito still faces some challenges to get the deal done:
Antitrust: Stakes in MillerCoors joint venture in U.S. and CR Snow in China may need to be sold.
Financing: AB InBev is working with about 10 banks to arrange as much as $70 billion 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 $25 billion 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 beermakers 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. AB InBev wants SABMiller’s exposure to emerging markets in Latin America and Africa.
AB InBev turned to Lazard for financial advice and its corporate broker Deutsche Bank AG, as well as lawyers from Freshfields Bruckhaus Deringer and Cravath Swaine & Moore. Robey Warshaw, JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs & Co. are advising SABMiller, which sought legal advice from Linklaters and Hogan Lovells International.
