SABMiller Said Open to Discussing Potential AB InBev Offer

Why the Beer Industry Boils Down to Two Major Players
  • Management may consider deal that offers value to shareholders
  • AB InBev may have to pay at least 39 pounds a share: analysts

SABMiller Plc is open to discussing a potential offer from larger rival Anheuser-Busch InBev NV as its options for consolidation narrow in a stagnant brewing industry, according to people with knowledge of the discussions.

AB InBev, whose market value is more than double that of SABMiller, said Wednesday it intends to make an offer for the company, which would unite the world’s two biggest beer makers with combined annual sales of about $81 billion. SABMiller’s management would consider an offer that provides good value for shareholders, the people said, asking not to be named as details aren’t public.

SABMiller acknowledges the fact that AB InBev is likely the only realistic buyer, one of the people said. AB InBev Chairman Olivier Goudet contacted his counterpart at SABMiller, Jan du Plessis, this week to propose discussions on a potential deal, two of the people said.

No proposal has yet been received and there can be no certainty that an offer will be made, SABMiller said in a statement on Wednesday. SABMiller may also reject any potential bid if deemed too low, the people said.

An offer for SABMiller would probably have to be at least a 30 percent premium to its stock price before yesterday’s rise, or more than 39 pounds ($60) per share, according to an analyst note from Sanford C. Bernstein Ltd. That would value SABMiller at about 63 billion pounds, or $98 billion, according to data compiled by Bloomberg.

U.S. regulators are likely to ask for the disposal of SABMiller’s stake in Miller Coors in the U.S., while AB InBev may also have to sell SABMiller’s 49 percent stake in CR Snow Zeijang in China, the analysts said.

SABMiller shares gained as much as 24 percent on news of a possible combination, which would be the biggest in the industry’s history, before closing 20 percent higher, valuing the company at about $91 billion. AB InBev rose as much as 12 percent and closed up 6 percent at 100.50 euros. SABMiller made Domenic De Lorenzo chief financial officer in July, reviving takeover speculation due to his background in handling deals.

Representatives for SABMiller declined to comment. A spokesman for AB InBev didn’t respond to requests for comment.

Market Slowdown

A combination would help both brewers combat a slowdown in developed markets like the U.S. and Europe, where drinkers are seeking out craft brews or wine and spirits instead of beer. AB InBev would gain access to over $7 billion of revenue in Africa with brands including Castle lager and almost $4 billion of sales in Asia if it bought SABMiller, reducing the beer giant’s dependence on the Americas and Brazil.

“Some SABMiller shareholders have seen the company’s exposure to emerging markets over the past few months as a drag on its share price,” said Tom Russo, who oversees investments worth $10 billion at Gardner Russo & Gardner, including SABMiller and AB InBev shares. “AB InBev will pay a premium for that same exposure and the business will be run by an extraordinarily focused management team that’s been successful in cutting costs and driving value.”

A deal would cement an acquisition spree by AB InBev that has seen the company involved in proposed and completed mergers worth about $129 billion in the last two decades, according to data compiled by Bloomberg. SABMiller’s deals totaled $40 billion, including an approach to Heineken NV last year that was rejected by its controlling family.

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