AB InBev and SABMiller targets $275bn ?mega-brew?deal

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Anheuser-Busch InBev, the world?s largest brewer, is exploring a takeover of rival SABMiller in a deal that would create a $275bn company responsible for one out of every three beers produced globally.

A tie-up between the owner of Budweiser and Stella Artois and the group behind Peroni and Grolsch, dubbed ?mega-brew?, would rank as one of the six largest takeovers in history and the biggest in a year that was already the strongest for blockbuster deals since 2007.

It would mark the latest stage of a remarkable consolidation in the global brewing industry driven by a group of Brazilian investors led by Jorge Paulo Lemann. They are also the founders of 3G Capital, the Brazilian private equity group which has been buying up US food companies such as Heinz, Kraft and Burger King ? sometimes with the support of investor Warren Buffett.

A series of deals over the past decade have transformed AB InBev and SABMiller into the world?s two biggest brewers. They, along with Heineken and Carlsberg, make half the world?s beer.

Ironically, the industry has consolidated just as consumer tastes in beer are fragmenting. Big brewers face a challenge from craft beer, popular with millennial and younger drinkers who reject what they perceive as the bland offerings of the big multinationals.

SABMiller said yesterday that it had been informed that AB InBev intended to make a bid proposal for the company but it had not received any proposal or details about its terms.
?The board of SABMiller will review and respond as appropriate to any proposal which might be made,? it said after the Financial Times told the company it intended to report the approach.

Under rules guiding takeovers in the UK, AB InBev has until 5pm on October 14 to make a firm offer to SABMiller. AB InBev later confirmed that it had made an approach, saying its intention was ?to work with SABMiller?s board toward a recommended transaction?.

Shares in SABMiller shot up 20 per cent to ?36.14 in London, giving it a market capitalisation of ?58.5bn ($90.7bn). SABMiller has net debt of about ?7.5bn. AB InBev shares closed up 6.4 per cent at ?100.50, valuing its equity at ?161.6bn ($182.6bn).

AB InBev is hoping to engage the management of SABMiller in a friendly transaction, according to people familiar with the matter. It is being advised by Lazard, the independent investment bank, and law firm Freshfields. SABMiller is working with advisers at Robey Warshaw, JPMorgan Chase, Morgan Stanley and lawyers at Linklaters.

Given the size of the two companies, AB InBev would have to agree to divestitures to obtain regulatory approval for a deal in multiple countries, including the US and China.

SABMiller has a near-30 per cent share of the US beer market via MillerCoors, its joint venture with Molson Coors. It also has 23 per cent of China?s beer market through a joint venture with China Resources Enterprise.

Trevor Stirling, analyst at Bernstein, said the US Department of Justice would almost certainly insist on the disposal of SABMiller?s stake in MillerCoors in the US, but added that Molson Coors could be a willing purchaser.

BY JAMES FONTANELLA, ARASH MASSOUDI AND SCHEHERAZADE DANESHKHU

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