Budweiser’s parent AB InBev raises offer for SABMiller to $108 bn

According to Euromonitor, AB InBev has a 21 per cent share of the global beer market.

A bartender serves a beer produced by brewing company SAB Miller at a bar in Cape Town, South Africa. The same could soon apply in Europe, said Giulio Lombardi, senior director at Fitch Ratings. “Micro brewers and their highly differentiated cask ales also continue to make progress”.

In coming years, beer sales are expected to grow most in emerging economies in regions such as Africa, where SABMiller has a strong presence.

Tom Russo, of Gardner Russo & Gardner, which holds stakes in both brewers, each worth about $650m, said “AB InBev would have been penny-wise and pound-foolish to not have come forward with a price that could get the job done”.

There also would be substantial cost-cutting, potentially in head offices and country management teams, said John Colley, a business professor at University of Warwick in Nottingham, United Kingdom.

“Dividends are ordinarily suspended once a deal is agreed on and including these was a key part of recent negotiations by SABMiller’s board, according to a person familiar with the matter”, The Wall Street Journal reported.

It would also force change in the wider beverage sector, with SABMiller a large distributor of Coca Cola while AB InBev has ties with rival PepsiCo.

SABMiller rejected at least four other offers before provisionally accepting the offer which values SABMiller at 44 pounds (about $67) per share, 6 pounds (about $9) more than AB InBev’s first offer a month ago. SABMiller’s two biggest shareholders, Marlboro owner Altria and Colombia’s BevCo, would get both cash and shares for their 41 percent stake.

The agreement came after several weeks of discussions in London, and a deadline of Wednesday for a formal offer, under British takeover rules. In that time, the two sides will work on the terms and conditions of the takeover as well as the financing of the deal. AB InBev’s share price was 1.5 percent higher at 99.84 euros in Brussels.

Anheuser-Busch InBev’s proposed acquisition of SABMiller for more than $104 billion would give the combined company a global market share of almost 30 percent.

SABMiller was the biggest gainer in the top flight – up 326.5p to 3,948p – as it edged closer to a mega-merger with Belgium-based Budweiser brewer AB InBev.

Most analysts believe the two companies are geographically diverse enough that regulators will not have to scrap the deal outright.

The new company would dwarf the next biggest player, Heineken, which has 9 percent of the market. “People who had been buying the miners over the last week would now be tempted to sell and lock in a few profits on them”, said Charles Hanover Investments’ partner Dafydd Davies.

‘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. SABMiller, which is based in London, is the maker of rival brand Miller Genuine Draft, along with other names like Peroni and Milwaukee’s Best. A joint venture with China Resource Enterprises sells Snow, a beer that is only sold in China and is the biggest-selling single brand of beer.

Following Tuesday’s announcement, Fitch reiterated that it may downgrade its credit rating on AB InBev. Senior director Giulio Lombardi warned that the $125 billion in debt that the company would have would be a lot given the market is getting tougher in the developed and the developing worlds.