SABMiller May Cost Budweiser Maker More Than $100 Billion

Budweiser beer in Moscow, Russia.

Budweiser beer in Moscow, Russia.

Photographer:Alexander Zemlianichenko JR/Bloomberg
  • AB InBev can afford to pay 4,655 pence a share: Susquehanna
  • SABMiller shares jump 20% after disclosing takeover approach

Anheuser-Busch InBev NV unveiled plans to acquire SABMiller Plc, a deal that may cost the Budweiser brewer more than $100 billion as it seeks to unite the world’s two biggest beermakers.

SABMiller gained 20 percent to 3,614 pence in London Wednesday after AB InBev disclosed the long-awaited approach. According to the average of five estimates of analysts compiled by Bloomberg, AB InBev may pay more than 4,200 pence for each share of its rival. SABMiller is open to discussions and would consider a bid that provides good value for shareholders, according to people with knowledge of the talks. No offer has yet been made.

AB InBev “can afford a more compelling offer” than SABMiller’s current price, Pablo Zuanic, an analyst at Susquehanna, said in a note, pointing to a potential boost to earnings of more than 30 percent. He estimates a price of 4,655 pence for each SABMiller share.

The acquisition of SABMiller would be the biggest in the industry’s history and cap more than a decade of consolidation across brewing companies. A potential combination of the beermakers had been seen as likely for years as they have limited geographical overlap and are not controlled by a family foundation like their main competitors, Heineken NV and Carlsberg A/S. Together, the companies would supply one out of 3 beers sold worldwide.

Molson Coors

Wednesday’s jump in SABMiller shares boosted the company’s market value to about 58 billion pounds ($90 billion). Before today, the stock had fallen 18 percent in a year.

“Given that SAB’s share price has been so weak in the last 12 months, it makes a deal much more affordable,” Trevor Stirling, an analyst at Sanford C. Bernstein, said in a note. Any offer from AB InBev would have to be valued at at least 3,900 pence, according to Stirling.

AB InBev shares rose 6.4 percent to 100.5 euros at the close of trading in Brussels, while SABMiller’s U.S. partner Molson Coors Brewing Co. gained as much as 15 percent in New York. SABMiller’s stake in its joint venture with Molson Coors is likely to be sold in the event of a takeover to appease regulators, with the U.S. company viewed as the natural buyer.

SABMiller said it was told by AB InBev about its plans for a takeover, with AB InBev saying it wants to work with the board of SABMiller “toward a recommended transaction.”

Slowing Business

The acquisition would be the biggest in the industry’s history and cap more than a decade of consolidation across brewing companies. A potential combination of the beermakers had been seen as likely for years as they have limited geographical overlap and are not controlled by a family foundation like their main competitors, Heineken NV and Carlsberg A/S.

The beer industry has used consolidation to stave off a slowdown in moreestablished markets such as Europe and the U.S., where drinkers are swapping to craft brews and wine and spirits, or merely drinking less. AB InBev, led by Chief Executive Officer Carlos Brito, hasboosted revenue more than fivefold in the last 10 years with the help of almost $100 billion in acquisitions. Its growth is set to slow over the next five years, estimates compiled by Bloomberg show.

Weakening economies in Brazil and China, two of the growth engines for brewersin recent years, may have hastened AB InBev’s approach, according to Ross Colbert, an analyst at Rabobank International. The resulting drop in beer consumption in those emerging markets “is driving the push for greater consolidation,” he said.

Pie chart
Pie chart

Under U.K. takeover rules, AB InBev has until 5 p.m. in London on Oct. 14 to
either make an offer or walk away. SABMiller disclosed the approach in response to what it called “recent press speculation.”

Any deal would require the backing of Altria Group Inc., the largest
shareholder in SABMiller with a 27 percent stake. AB InBev will also need to
persuade the family of Alejandro Santo Domingo, among the richest clans in Colombia and the owner of a 14 percent stake in SABMiller.

To allow the deal to clear regulatory hurdles, analysts have said that
SABMiller would need to exit its U.S. joint venture with Molson Coors, which is called MillerCoors LLC. AB InBev may also have to sell SABMiller’s 49 percent stake in CR Snow, its Chinese brewery partner. SABMiller also owns 20 percent of closely-held French drinks company Groupe Castel.

End Game

The two largest brewers have been seen as the end game for global beer mergers. An acquisition of SABMiller, led by CEO Alan Clark, would give AB InBev access to more than $7 billion of revenue in Africa with brands including Castle lager and almost $4 billion of sales in Asia, reducing AB InBev’s dependence on the Americas and Brazil.

With Latin America representing SABMiller’s biggest market, a deal would also broaden AB InBev’s presence in countries such as Colombia, Ecuador and Peru. Its Latin American brands include Cristal and Aguila.

AB InBev’s growth has been based largely around acquisitions since it was formed through a series of purchases by a group of Brazilian businessmen led by Jorge Paulo Lemann. Some analysts have speculated that Lemann’s 3G Capital could help orchestrate a takeover of SABMiller, just as it did when InBev NV bought Anheuser-Busch in 2008.

Lazard Ltd. and Freshfields Buckhaus Deringer LLP are advising ABI on its potential bid, people familiar with the matter said. SABMiller is being advised by Robey Warshaw LLP, JPMorgan Chase & Co., Morgan Stanley and Linklaters.

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