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 The SABMiller board said it would give its blessing to a fifth
proposal from its sole larger rival. If it goes through, the deal
would rank in the top five mergers in corporate history and be the
largest takeover of a UK company.
After repeated rejections to its lower proposals, AB InBev said on
Tuesday it was willing to pay 44 pounds in cash per SABMiller share,
with an alternative for cash and shares set at a discount and
limited to 41 percent of SABMiller shares.
SABMiller has indicated that its board would be prepared to accept
the offer and has asked for a two-week extension to the UK-imposed
deadline set for 1600 GMT on Wednesday for a formal bid. The new
deadline is Oct. 28.
"We have written extensively on the attractions of (an ABI/SAB
combination) since 2011 and continue to see major long-term benefits
for ABI shareholders now," said Canaccord Genuity analysts.
The new group would combine AB InBev's Budweiser, Stella Artois and
Corona lagers with SABMiller's Peroni, Grolsch and Pilsner Urquell.
AB InBev would add certain Latin American and Asian breweries to its
already large presence and, crucially, enter Africa for the first
time.
Africa is expected to see a sharp jump in the legal drinking age
population in coming years and a fast-growing middle class more
willing to switch to lagers and ales from illegal brews.
For many observers this would be the final chapter of decades of
consolidation in brewing. The big four, AB InBev, SABMiller,
Heineken and Carlsberg, are already present across the globe and
brewing more than half of the world's beer.
BREAK FEE
The parties have agreed that AB InBev would pay a break fee of $3
billion to SABMiller in the event the transaction fails due to the
significant regulatory issues or because AB InBev shareholders do
not back it.
The new offer unveiled on Tuesday surpasses a Monday proposal set at
43.50 pounds in cash and is 50 percent above SABMiller's shares on
Sept 14, the day before speculation surfaced about an impending AB
InBev approach.
The partial share alternative remains, designed for SABMiller's two
main shareholders, cigarette-maker Altria <MO.N> and the BevCo
company of Colombia's Santo Domingo family, who own 40.5 percent of
the UK-based brewer.
Were they to accept the discounted alternative and all other
shareholders took cash, the offer would be worth 68.5 billion pounds
($104 billion) at current prices.
SABMiller shares were up 9.0 percent at 1045 GMT, while AB InBev's
were 1.7 percent higher.
"There's so much we don't know – we don't know what costs they'll
take out, we don't know what they'll get for the asset sales that
they'll have to make. But if you make reasonable assumptions about
those, I think it's a pretty good price all around," said
Morningstar analyst Phil Gorham.
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MAJOR ANTITRUST HURDLES
There are significant antitrust hurdles to any combination,
particularly in the United States, where the companies would have
about 70 percent of the beer market.
A deal would likely result in Denver-based Molson Coors acquiring
SABMiller's 58 percent stake in their U.S. joint venture.
Any merged group may also have to sell interests in China, where
SABMiller's CR Snow joint venture with China Resources Enterprise is
the market leader.
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.
Bernstein Research beverage analyst Trevor Stirling said that he
rated the chances of the deal going through at 80 percent, with
antitrust issues being the main risk.
"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.
Morningstar's Gorham said that, of remaining assets, the beer
business of Guinness and spirits maker Diageo <DGE.L> looked
particularly attractive, with Heineken a possible buyer.
Carlsberg's new management is likely to have its hands full with
sorting out problems in Russia for some time.
"With all the major M&A targets now taken, and M&A so important to
brewers’ growth, it raises the question of where next for global
brewers as they bid to carry on growing," said Jeremy Cunnington, a
drinks analyst at Euromonitor International.
($1 = 0.6562 pounds)
(Additional reporting by Kate Holton and Freya Berry)
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