After making four takeover bids, Anheuser-Busch InBev SA/NV BUD finally managed to reach an agreement with SABMiller plc SBMRY, to create the “first truly global beer company,” valued at roughly $106 billion. Following the announcement, shares of AB InBev climbed nearly 2% in the pre-market trading session.
Per the agreement, SABMiller stockholders will receive GBP 44.00 per share, along with a partial share alternative (“PSA”) offered for 41% of SABMiller shares.
Notably, the cash offer marks a premium of more than 50% over SABMiller’s closing price of GBP 29.34 on Sep 14, which was the last trading session before the merger talks commenced.
Also, the company stated that all SABMiller stockholders going for the PSA will be entitled to get 0.483969 unlisted shares, along with GBP 3.7788 in cash for every SABMiller share. Additionally, SABMiller shareholders will be eligible to all dividends, announced or paid by the company in the regular course, with various terms attached.
The Zacks Rank #5 (Strong Sell) company had been trying hard to get its hands on SABMiller for almost a month. However, the latter had been rejecting the bids on grounds of them being undervalued.
While, SABMiller had been turning down AB InBev’s proposal, Altria Group Inc. MO – SABMiller’s largest shareholder with 27% stake, had urged SABMiller’s board accept the third offer. On the other hand, sources revealed that BevCo holding company of SABMiller’s second largest shareholder- Santo Domingo family was strongly against the bid.
However, the latest agreement between the two brewers suggests that that SABMiller managed to receive BevCo’s backing.
Merger Prospects
On merger the combined entity would reportedly control about one-thirds of the global beer market, leaving behind Heineken NV HEINY, holding about 9% market share. Additionally, the combined firm is expected to generate nearly $64 billion in annual revenues and an EBITDA of about $24 billion, as earlier unveiled.
Per AB InBev, this merger is likely to benefit both the companies by bringing together their individually solid brand portfolios and innovative teams. Also, their robust geographical spread would enable the combined giant to serve all major beer markets, including the emerging markets of Africa, Asia, and Central and South America, which have solid growth potential.
Thus, this combined firm – with a stronger network and enhanced brand structure would boost shareholder value, and cater to consumers of both entities by offering them a wider assortment.
However, it might be difficult for the two beer giants to get approval from the U.S. anti-trust regulators. This is because the merger could have wider implications on the worldwide beer market as well by hurting competition and hiking prices for consumers. Moreover, the deal will likely encounter the same challenge in other global markets where the two companies have a significant presence like Europe, China, Russia and Australia.
In fact, AB InBev had to agree to make a reverse break fee payment of $3 billion to SABMiller, incase it fails to acquire regulatory approvals or shareholders’ consent. Also, in order to finalize the deal, the Belgian brewer is required to make a formal offer to SABMiller by latest Oct 28.
While investors are still unsure of this merger, let’s wait and see what’s in store for these beer giants.
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