Big beer gets bigger with AB Inbev and SABMiller merger

Anheuser-Busch InBev announced today that it’s agreed in principle that will allow them to acquire SABMiller for 4 billion. Until then, the two companies will work out details and financing.

The US$67 cash offer values the maker of Peroni and Grolsch at about 50 percent more than its value on 14 September, before news of AB InBev’s interest leaked. A deal would combine InBev’s dominance in Latin America with SABMiller’s Africa presence, where it is the market leader in 15 countries.

Sources suggest AB InBev had the potential to increase the bid to 45 pounds share, the price the SABMiller board was inclined towards.

The sheer scale of the deal means it will likely run into resistance from regulators, notably in the US and China, amid concerns it could stifle competition and decrease choice for consumers. The combined company would control almost a third of the global market.

SABMiller’s 49% stake could be worth as much as $5bn, according to Nomura’s Edward Mundy.

The announcement of the blockbuster buyout of the world’s second largest brewer, SABMiller, by Anheuser-Busch InBev has regulators and the beer industry scrutinising the possible ripple effects of the merger.

The board of SAB said it is prepared to “unanimously” recommend a £44 a share cash offer from the maker of Budweiser and Stella Artois. SABMiller’s chairman Jan du Plessis, however, was keen to stress that AB Inbev needs SABMiller more than SABMiller needs AB Inbev and was willing to hold out for an offer that valued the company higher.

A merger among these two brewing giants would be a continuation of market consolidation in the beer industry, which has been gaining momentum for the past decade. The Belgian-Brazilian behemoth is eager to tap into booming markets in Africa and China, where SABMiller’s joint venture produces Snow – the world’s best selling beer by volume.

SABMiller met with investors Friday to underscore its strength as an independent company to head off the takeover attempt.

They each employ around 1,000 workers in the UK.

“Beer sales [in the U.S.] are going to be about flat this year”, said Bart Watson, chief economist at the Brewers Association, a Colorado-based trade group. AB InBev was little changed at 98.35 euros in Brussels.

The global market share of AB InBev and SABMiller together would be about 31 percent – dwarfing the 9 percent of the Heineken, the next closest competitor.

The parties have agreed that AB InBev would pay a break fee of US$3 billion (S$4.2 billion) to SABMiller in the event the transaction fails due to the significant regulatory issues or because AB InBev shareholders do not back it.