SABMiller Says Agrees Mega Takeover by Rival Brewer AB InBev

Investors are toasting a massive deal between the two biggest beer brewers in the world, Anheuser-Busch InBev and SABMiller. “A deal was clinched only after Olivier Goudet, chairman of AB InBev, intervened and said his company would raise its cash offer for a fifth time”.

The SABMiller proposal is an acquisition partly borne out of necessity, with AB InBev’s growth set to slow over the next five years, estimates compiled by Bloomberg show. “Market share is the first one that jumps to mind for many merger arbitrageurs who wonder how such a deal would fare with antitrust regulators”, writes Bloomberg’s Phil Serafino. Other shareholders can elect to take the alternative as well, in which case Altria’s and BevCo’s stakes in AB InBev shares would be diluted and topped off with cash. It would easily be the largest deal agreed on so far this year.

Antitrust issues would likely lead to sales of assets in the United States and China and impact soda makers and bottlers. The big four, AB InBev, SABMiller, Heineken HEIN.AS and Carlsberg CARLb.CO , are already present across the globe and brewing more than half of the world’s beer.

Short-term traders will be quids-in, too, with AB InBev’s offer 50% more than the share price one month ago when speculation about a bid resurfaced (see chart below).

SABMiller – which owns Peroni – says its board is prepared to recommend the offer.

AB InBev had always said it did not want to go hostile with its takeover plans, but was becoming frustrated by SABMiller’s tactics and last week urged shareholders in SABMiller to force its board into serious takeover talks. This included $3 billion payable to SABMiller in the event that the transaction fails to close as a result of the failure to obtain regulatory clearances or the approval of AB InBev shareholders.

RBC Capital Market’s managing director of consumer research, James Edwardes Jones said: “SABMiller’s board, it is now apparent, has negotiated very effectively rather than frustrating its shareholders by clinging onto its independence”.

Anheuser Busch InBev (BUD) stock is rising by 1.98% to $113.70 in pre-market trading on Tuesday, after the company agreed to acquire SABMiller (SBMRY) for more than $100 billion, according to Reuters. A merger, if completed, would combine the worlds two largest brewers, creating a behemoth that has annual revenue of about $64 billion and that commands 30 percent of global beer sales. AB InBev was forced to dramatically restructure its $20.1 billion acquisition of Mexican brewing giant Grupo Modelo SAB in 2013 after the U.S. Justice Department sued to block the deal. A few divestitures could also be required in Latin America.

The agreement, which is tentative, caps weeks of back-and- forth over price, with SABMiller saying three previous overtures undervalued its business.

“There is a chance that due diligence throws up something nasty”, he said, but added that SABMiller would be unlikely to have accepted AB InBev’s approach if they knew of a major problem.