Anheuser-Busch InBev NV closed in on the biggest corporate takeover in U.K. history after proposing to pay almost $106 billion for SABMiller Plc to create a brewer selling one in every third beer worldwide.
The maker of Budweiser agreed to pay 44 pounds a share in cash for a majority of the stock, the companies said Tuesday. SABMiller said its board is prepared to recommend the offer, as shares in the target rose 9 percent in London. A successful takeover would give AB InBev beer brands such as Peroni and Grolsch and control of about half of the industry’s profit.
The agreement, which is tentative, caps weeks of back-and-forth over price, with SABMiller saying three previous overtures undervalued its business. After years of speculation, AB InBev’s pursuit of its nearest rival was hastened by the drag of slowing economies in the emerging markets of China and Brazil. For AB InBev Chief Executive Officer Carlos Brito, the combination would cap a $90 billion dealmaking spree over the last decade, turning a regional brewer into the undisputed global leader.
"SAB did a great job playing poker and driving the price higher," said Peter Braendle, who manages about $450 million in stocks, including SABMiller and AB InBev, at Zuercher Kantonalbank in Zurich. "ABI will do everything in its power to make this a success."
SABMiller shares closed at 39.48 pounds in London on Tuesday. The discount to the proposed offer price reflects “a residual, but misplaced fear that the deal won’t happen,” said Andrew Holland, an analyst at Societe Generale. AB InBev rose 1.7 percent to 100 euros in Brussels.
The SABMiller proposal is an acquisition partly borne out of necessity, with AB InBev’s growth set to slow over the next five years, estimates compiled by Bloomberg show.
A 20 percent drop in SABMiller shares in the months preceding the approach and the prospect of an end to cheap credit also served as a catalyst to a takeover.
The takeover would be the largest in U.K. history, surpassing this year’s 47 billion-pound purchase of BG Group Plc by Royal Dutch Shell Plc. It would also be the biggest deal of 2015, already a bumper year for dealmaking, according to data compiled by Bloomberg.
AB InBev and SABMiller agreed to seek a two-week extension to Wednesday’s deadline for a formal offer, giving them until 5 p.m. London time on Oct. 28 to hammer out the agreement. AB InBev would pay a fee of $3 billion if it fails to get approval from regulators and shareholders. The new company will be incorporated in Belgium.
SABMiller’s two largest shareholders, Altria Group Inc. and Bevco Ltd., can receive cash and stock valued at 39.03 pounds a share for their stakes, which account for 41 percent of the company. They won’t be able to sell the shares for five years, and will have the right to nominate directors.
Altria, which had already endorsed AB InBev’s first public overture, said it is pleased about the latest steps and that it “looks forward to working constructively with both parties.”
The offer price is 50 percent above the closing value on Sept. 14, the day before takeover speculation resurfaced. The U.K. brewer spurned previous proposals, including one AB InBev made public on Oct. 7 that valued the company at about 65.2 billion pounds.
“We think that this is good value for SAB,” said Alicia Forry, an analyst at Canaccord Genuity. “It’s great that they’ve come to a point where the valuation is agreed, and we expect ABI in due course to make a firm offer.”
Brito still faces some challenges to pull off his crowning transaction. To gain approval from regulators, stakes in MillerCoors joint venture in U.S. and CR Snow in China may need to be sold. Structuring the required funding will also prove complex, with AB InBev working with about 10 banks to arrange as much as $70 billion in financing.
Together, AB InBev and SABMiller will be the world’s largest consumer-staples company by earnings, according to Exane BNP Paribas analysts, who estimate the combined company will make $25 billion before interest, tax, depreciation and amortization in 2016. The enlarged brewer will have the number one or two positions in 24 of the world’s 30 biggest beer markets, they estimate.
A potential combination of the beermakers had been seen as likely for years as they have limited geographical overlap and aren’t controlled by a family foundation like their main competitors, Heineken NV and Carlsberg A/S. AB InBev wants SABMiller’s exposure to emerging markets in Latin America and Africa.
AB InBev turned to Lazard for financial advice and its corporate broker Deutsche Bank AG, as well as lawyers from Freshfields Bruckhaus Deringer and Cravath Swaine & Moore. Robey Warshaw, JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs & Co. are advising SABMiller, which sought legal advice from Linklaters and Hogan Lovells International.