€88bn InBev bid to shake up global brewing

The world’s two biggest brewers yesterday agreed to create a company making almost one third of the world’s beer after SABMiller accepted an offer worth more than $100bn from larger rival Anheuser-Busch InBev.

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 in cash per SABMiller share, with an alternative for cash and shares set at a discount and limited to 41% of SABMiller shares.

The tie-up could also force change in the wider beverage sector, with SABMiller a large distributor of Coca Cola while AB InBev has ties with rival PepsiCo.

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.

The new offer surpasses a Monday proposal set at £43.50 in cash and is 50% above SABMiller’s shares on September 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 and the BevCo company of Colombia’s Santo Domingo family, who own 40.5% of the UK-based brewer.

“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,” said Morningstar analyst Phil Gorham.

“But if you make reasonable assumptions about those, I think it’s a pretty good price all around.”

There are significant antitrust hurdles to any combination, particularly in the US, where the companies would have about 70% of the beer market.

A deal would likely result in Denver-based Molson Coors acquiring SABMiller’s 58% stake in their US 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.

Mr Gorham said that, of remaining its assets, the beer business of Guinness and spirits maker Diageo 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.