AB InBev's deal to buy SABMiller likely to face regulatory scrutiny

If merger goes ahead the combined company would control one third of global beer sales and bring together top US brands Budweiser and Miller

PUBLISHED : Tuesday, 13 October, 2015, 9:00pm
UPDATED : Tuesday, 13 October, 2015, 9:04pm

At the sixth time of asking, British-based brewer SABMiller has accepted in principle a £69 billion (HK$813 billion) takeover offer from Anheuser Busch InBev that will create the world's biggest beer company and bring together top US brands Budweiser and Miller.

Having dismissed previous proposals over the past few weeks as undervaluing the company, the directors of SABMiller unanimously agreed to an offer that values each SABMiller share at £44, £6 more than its first offer almost a month ago. SABMiller's two biggest shareholders, Marlboro owner Altria and Colombia's BevCo, would get both cash and shares for their 41 per cent stake.

AB InBev, which owns Budweiser among a range of top-selling brands, has until October 28 to come up with a formal offer if British regulators grant an extension to the takeover talks. In that time, the two sides will work on the terms and conditions of the takeover offer as well as the financing of the deal.

If the merger deal is formally agreed on, the combined company will control some 31 per cent of beer sales around the globe. Given the size of the company, there are likely to be regulatory concerns, notably in the US and China as authorities worry about the impact on consumer choice and competition.

The markets think that the deal is now very likely and SABMiller's shares were trading right near the bid price. In midmorning trading in London, they were up 8.8 per cent at £39.42.

The two companies said yesterday the all-cash offer represented a premium of around 50 per cent to SABMiller's share price on September 14, the last trading day before renewed speculation of an approach from AB InBev emerged. For the cash and stock part, the premium is around 33 per cent.

According to yesterday's statements, AB InBev has agreed to pay US$3 billion to SABMiller if the deal fails to close because of failure to get regulatory approval or the clearance of AB InBev shareholders.

Connor Campbell, a financial analyst at Spreadex, cautioned that that any pact leading to a single company producing a third of the world's beer "is going to come under intense, potentially deal-ending, scrutiny from regulators".

The new company would dwarf the next biggest player, Heineken, which has 9 per cent of the market. A combined company would have total annual sales of US$73.3 billion.

Market leader AB InBev already has six of the world's largest beer brands. In addition to Budweiser, brands it owns include Stella Artois and Beck's. 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.

Crucially for AB InBev, a deal would allow it to venture out more into the African and Australian markets where its might has yet to be felt in the way it is in Europe, North Africa and Asia.

The beer industry has been consolidating for the past decade as it seeks to gain more clout with suppliers, distributors and retailers.

"The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate," said Professor John Colley of Warwick Business School. "Micro brewers and their highly differentiated cask ales also continue to make progress," he said.

AB InBev has a history of making acquisitions and will be looking to find cost savings from the deal as well more clout with suppliers through its size.

Colley says to "expect substantial redundancies" over the coming year, potentially in head offices and country management teams.

"AB InBev has both a reputation and demonstrable track record for being able to effectively extract these savings," he said.