QuickTake Q&A: Why ‘Megabrew’ Hit Pause Due to Pound’s Plunge


Brexit Brews Trouble for SABMiller-AB InBev Deal

SABMiller has hit the pause button on the beer-industry merger known as “Megabrew,” its $104 billion deal with Anheuser-Busch InBev. Blame Brexit. Following the U.K.’s vote to leave the EU, some shareholders of London-based SABMiller, the takeover target, objected that they hadn’t been compensated enough for the pound’s recent plunge. Belgium’s AB InBev, which financed the acquisition with the largest corporate bond offering in history, responded by sweetening its offer. SABMiller Chief Executive Officer Alan Clark then sent an internal memo ordering “no contact with AB InBev” while the board reviews the latest bid.

1. What’s Megabrew?

The deal struck last November would combine the world’s biggest brewers into a company controlling about half the industry’s profit and holding the No. 1 or 2 position in most of the world’s biggest beer markets. AB InBev makes Budweiser, Stella Artois and Beck’s; SABMiller’s brands (for now) include Peroni and Grolsch. The deal has withstood regulatory reviews, and the two companies were in the process of integrating their operations.

2. What’s the problem?

In a word, Brexit. The pound plummeted after British voters elected to leave the European Union in a June 23 referendum, forcing recalculations of global deals. SAB investors who were likely to take an all-cash payment -- including Aberdeen Asset Management -- will be hurt by the pound’s fall. By contrast, SAB’s two biggest stakeholders, Altria Group Inc. and Bevco Ltd., were granted a tax-friendly cash-and-stock option that’s only gotten better after the Brexit vote.

3. Could the deal fall apart?

Advisers continue to work on the transaction, and SABMiller’s board hasn’t decided to walk away from the deal as it reviews the improved offer from AB InBev, people familiar with the matter said. If it does fall apart, it’s by far the biggest corporate casualty so far of the Brexit vote.

4. What’s at stake for AB InBev and SABMiller?

If the deal doesn’t close, ABI would need to book a loss of about $9.6 billion based on the fall of the pound. If SABMiller walks away, it loses a break-up fee of $3 billion. SABMiller’s shares could also fall below 40 pounds if the deal’s off, analysts say, from about 43 pounds Thursday.

5. How are markets reacting?

SABMiller shares fell the most in almost ten months Thursday. Molson Coors, which is buying assets from the brewers as part of the deal, fell 5.1 percent Wednesday. Debt sold by AB InBev to fund the takeover tumbled, sparking concerns the company could redeem more than $35 billion of the $60 billion in securities sold at a discount to where they have been trading. 

6. What other deals has Brexit complicated?

Indian steel company Tata temporarily halted the sale of its U.K. assets after many of the shortlisted bidders pulled out, people with knowledge of the matter said. Telefonica, the Spanish telecom, has delayed the planned initial public offering of its Telxius infrastructure unit and the possible IPO of its U.K. wireless unit O2 because of Brexit-related market volatility.

7. What’s next?

SABMiller, which recently added Centerview Partners to its cadre of deal advisers, said Tuesday it would consult with shareholders and meet “in due course” to review AB InBev’s higher offer. There’s also one final regulatory hurdle ahead, in China. Analysts expect the deal to gain clearance there any day.

The Reference Shelf

  • A graphic on Brexit’s impact on business.
  • A story on the outlook for bond investors.
  • A QuickTake explainer on Brexit.
  • A QuickTake Q&A on a deal that Brexit may have helped, not hurt.

— With assistance by Thomas Buckley, and Ruth David

    Before it's here, it's on the Bloomberg Terminal.