It has taken a decade for AB InBev’s rumoured interest in SAB Miller to become something more tangible, but the lengthy takeover saga is really only just beginning.
This morning SAB Miller confirmed that AB InBev has finally pulled the trigger on one of the stockmarket’s longest-standing rumours by making an official takeover approach.
AB InBev now has four weeks to turn the initial approach into something more tangible, but the progress of merging the world’s two largest beer producers will be a far more elongated affair.
The scale of the potential deal is vast. The combined firm would be worth around $250bn, with the two individual companies currently holding above 40% of the global beer market – dwarfing the next biggest, Heineken, with around 9%.
It will also come with a vast price tag that was previously thought to be one of the biggest obstacles standing in the way of a bid. Reports suggest any approach is likely to value SAB Miller at above £70bn – implying a price-per share for SABMiller of around 4,400p. Even with a 21% share price jump today, SAB is still only trading at 3,643.5p – so AB InBev may have to stump up a premium of over 20% on today’s inflated share price to get the deal across the line.
It is this sheer scale that means the deal still has a vast distance to go before becoming reality.
Even if AB InBev convinces SABMiller shareholders to accept the deal – far from a sure thing given SAB Miller’s rebuffed overtures to Heineken last year in an apparent attempt to stave off the unwelcome interest of its bigger brewing contemporary – the regulatory hurdles standing in their way are high in number and significance.
First of all, it is inconceivable that SAB Miller would be able to keep its 58% stake in MillerCoors in the US and SAB would also be likely to be forced to sell off brands in China and India. Additionally, monopoly issues could raise their head in Russia and parts of Africa and there’s the added complicated of SAB’s relationship with Coca-Cola in Africa, which conflicts with AB InBev’s own deep partnerships with PepsiCo.
So why would AB InBev even consider wading through all this regulatory and logistical mess? The fairly simple rationale of the deal is that SAB Miller would instantly give it industry-leading strength in Africa – a region it remains notably underweight in at the current time - and widen its exposure to emerging markets more generally.
AB InBev also has 3G Capital as a key investor – currently owning around 20% - and 3G Capital is not afraid of trying to get industry-redefining M&A across the line, as proved by Kraft-Heinz.
So the deal is certainly not unimaginable – but today’s news is only the first official step on a long journey likely to add many more months to the decade-long pursuit.
InBev’s acquisition of Anheuser-Busch took five months from initial bid to completion back in 2008. This potential tie-up could make that deal look like a whirlwind marriage.
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