Anheuser-Busch InBev’s long-rumored takeover of SABMiller is underway.
In a statement, the world’s largest beer company confirmed Wednesday that it had approached SABMiller, the world’s second largest beer company, about a “combination” of the two companies.
“AB InBev’s intention is to work with SABMiller’s Board toward a recommended transaction,” the company wrote in a press release.
For its part, London-based SABMiller said an official proposal has not been received.
“There can be no certainty that an offer will be made or as to the terms on which any offer might be made,” it said in an official response to recent press speculation A-B was planning a takeover bid.
According to the U.K. takeover code, A-B InBev now has less than 30 days (October 14) to make a formal offer or pull out. SABMiller also has an opportunity to extend the timeline for a formal bid by as much as four weeks, which would indicate a willingness to cooperate with A-B InBev, according to analyst David Faber.
If completed, the deal would unite the world’s two largest beer companies who, together, control about one-third of the world’s beer supply. The combined drinks giant could be valued at more than $270 billion, according to Reuters.
SABMiller makes and markets more than 200 different beer labels, including well-known imports like Pilsner Urquell, Grolsch and Peroni. A-B InBev, which employs more than 155,000 people in 25 countries, globally owns the popular Budweiser, Stella Artois and Corona brands.
A tie-up would also undoubtedly prompt a strict, worldwide antitrust review, especially the U.S. where the two companies collectively own about 70 percent market share. There, SABMiller would likely need to divest its stake in MillerCoors, a joint venture with Molson Coors, according to analysts. In China, A-B would likely need to find a new owner for SABMiller’s CR Snow brand.
This type of divestiture has happened before. Recall that in 2013, the U.S. Department of Justice stepped in to help revise terms of A-B InBev’s purchase of Grupo Modelo. At the time, Constellation Brands (NYSE: STZ) already owned 50 percent of Crown Imports (a 50-50 joint venture with Grupo Modelo). The two companies eventually agreed to a deal that would transfer ABI’s Modelo business in the U.S. to Constellation for $2.9 billion. Constellation also agreed to acquire the Piedras Negras brewery in Mexico for an additional $1.85 billion (ABI had previously announced it would divest its stake in the joint venture for $1.85 billion).
Despite the hurdles, shares of SABMiller (LON: SAB) skyrocketed during early trading, rising as much as 24 percent. Shares of A-B InBev (NYSE: BUD) and Molson Coors (NYSE: TAP) also rose, up more than 5 percent and 13 percent, respectively, as of press time.
So what will it take to get a deal done and what kind of implications will it have on the U.S. beer market?
David Faber, a former institutional investor and financial news analyst with CNBC, broke things down this morning during his own ‘Faber Report’ broadcast.
“There is an awful lot that has to happen over the next 28 days in order for this to potentially come to fruition,” he said.
Any kind of merger would require the approval of two major shareholders: Altria Group Inc., which owns a 27 percent stake, and the family of Alejandro Santo Domingo, which owns 14 percent.
Both Altria and the Santo Domingo family will be advised by “the same bankers as the SABMiller board,” Faber said.
“This is going to be looked at in a complete fashion by that board, including of course the opinions of its two most important shareholders and the board members they have,” he said.
Faber also discussed the divestitures that would need to occur for any deal to be approved by the DOJ and other international regulatory bodies.
“58 percent of it (MillerCoors) is owned by SABMiller; going to have to be sold,” he said. “Conceivably Molson Coors will step up and buy it, that is a real benefit to that company, hence it is up 11 percent. But there is no way they will be allowed to have any presence here in the U.S., beyond what they already have at Anheuser-Busch.”
As much as $92 billion could be needed to finance the deal, Faber said.
According to Bloomberg, the acquisition would give A-B InBev access to more than $7 billion in revenue in Africa and as much as $4 billion of sales in Asia.
SABMiller sold 276 million barrels of beer, soft drinks and other alcoholic beverages in the year ended March 31, 2015, generating revenues of more than $26 billion, according to the company.