Anheuser-Busch InBev NV offered to buy SABMiller Plc for about 68.2 billion pounds ($104 billion), seeking to combine the world’s two largest brewers in a record industry deal after SABMiller spurned two previous proposals made privately.
The Budweiser maker is willing to pay 42.15 pounds a share in cash for its nearest competitor, whose brands include Peroni and Grolsch. The price is 44 percent above London-based SABMiller’s closing level on Sept. 14, the day before renewed speculation about a deal, AB InBev said in a statement Wednesday. SABMiller rejected two prior offers of 38 pounds a share and 40 pounds a share, the Leuven, Belgium-based company said.
“AB InBev is disappointed that the Board of SABMiller has rejected both of these prior approaches without any meaningful engagement,” AB InBev said. SABMiller’s largest shareholder, Altria Group Inc., said in a separate statement it supports the approach and urged SABMiller’s board to engage “promptly” with AB InBev. A spokesman for SABMiller declined to comment on the proposal.
After years of speculation, the approach was hastened by the impact of slowing economies in the emerging markets of China and Brazil and after a decade of consolidation in the industry eliminated smaller targets. A 20 percent drop in SABMiller shares in the months preceding AB InBev’s approach and the prospect of an end to cheap credit also served as catalysts.
The proposal includes an alternative that would allow shareholders to take a mix of cash and stock, thus reducing the tax hit that would come from selling for cash. Most SABMiller shareholders will accept the cash offer, since the cash-and-stock mix has a lower value of 37.49 pounds a share, AB InBev said. Altria said it would be prepared to accept the partial share alternative.
SABMiller rose 2.6 percent to 37.18 pounds at 8:10 a.m. in London. AB InBev gained 2.8 percent to 100.80 euros.
“This is not, in our view, intended as ABI’s concluding proposal," said James Edwardes Jones, an analyst at RBC Capital Markets. "But it is likely to put pressure on SAB’s management to engage and at least there is now a formal proposition to discuss."
The offer price would be compelling for SABMiller’s public shareholders while providing a continuing attractive investment for Altria and the family of Alejandro Santo Domingo, among the richest clans in Colombia and the owner of a 14 percent stake in SABMiller, AB InBev said.
The transaction would be the biggest of 2015 — already a bumper year for dealmaking — and the fourth-largest takeover ever, according to data compiled by Bloomberg.
Together, AB InBev and SABMiller would be the world’s largest consumer-staples company by earnings, according to Exane BNP Paribas analysts, who estimate the combined company would make $25 billion before interest, tax, depreciation and amortization in 2016. The enlarged brewer would have the number one or two positions in 24 of the world’s 30 biggest beer markets, they estimate.
Brewers face their biggest challenge in half a century as consumers shift from mid-range mass-produced beers either to premium, microbrew or discount products, McKinsey & Co. analysts said in a report in June.
Under the partial share alternative, holders of about 41 percent of SABMiller shares could choose a mix of cash and stock valued at 37.49 pounds a share based on yesterday’s closing price for AB InBev, AB InBev said. The stock would be a separate class that wouldn’t be admitted to trading on any exchange and would be subject to a five-year lock-up, according to the statement. After five years, the shares would be convertible into AB InBev’s ordinary stock on a one-for-one basis. The new class would have the same voting and dividend rights as the ordinary shares.
Lazard Ltd. and Freshfields Buckhaus Deringer LLP are advising AB InBev on its potential bid. SABMiller is being advised by Robey Warshaw LLP, JPMorgan Chase & Co. and Morgan Stanley.