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Post date: 11/12/2015 - 19:28

AB InBev’s SABMiller Deal Still Faces Hurdles

$108 billion brewing mega deal needs to be approved by U.S., EU and others

Anheuser-Busch InBev NV’s formal agreement to buy SABMiller PLC for about $108 billion sets in motion a complicated, yearlong process of winning regulatory approval around the world.

$108 billion brewing mega deal needs to be approved by U.S., EU and others

Anheuser-Busch InBev NV’s formal agreement to buy SABMiller PLC for about $108 billion sets in motion a complicated, yearlong process of winning regulatory approval around the world.

The announcement on November 11, 2015 brings an end to two months of negotiations between the world’s two largest brewing companies, but many analysts think the hardest work is yet to come.

Together, AB InBev and SABMiller sell more than 30% of the world’s beer including brands like Budweiser, Stella Artois, Grolsch and Pilsner Urquell. Exane BNP Paribas said the combined company would be the world’s largest consumer-staples maker by earnings before interest, taxes, depreciation and amortization and the third-largest by sales, behind Procter & Gamble Co. and Nestlé SA.

To close the deal, AB InBev will have to win regulatory approval in many places including the U.S., the European Union, China, South Africa, Colombia, Australia and India. Should the acquisition fall apart, AB InBev would have to pay $3 billion to SABMiller.

Just ahead of Wednesday’s announcement, AB InBev succeeded in clearing the most pressing regulatory hurdle with a side deal in the U.S. to sell SABMiller’s 58% stake in the MillerCoors LLC joint venture to Molson Coors Brewing Co. which holds the remaining stake as well as the Miller portfolio outside the U.S. for $12 billion.


The sale, contingent on the completion of the AB InBev-SABMiller deal, would catapult Molson into the position of the No. 2 brewer in the U.S., with a 25% market share, second to AB InBev’s 45% share.

AB InBev Chief Executive Carlos Brito said the sale was a “proof point” that the company would be “very decisive and very prompt in dealing with any regulatory issues that arise.”

That doesn’t necessarily mean smooth sailing, however. AB InBev took similar pre-emptive steps before it acquired Grupo Modelo, but the U.S. Justice Department still sued in 2013 and forced AB InBev to reshape the deal.

SABMiller’s board has agreed on the key terms of a sweetened takeover offer by Anheuser-Busch InBev, valuing it at $104.2 billion.

Another potentially big challenge is China, where the combined brewers have a sizable chunk of the market. Mr. Brito didn’t offer details on whether AB InBev would be forced to sell SABMiller’s stake in a joint venture that produces Snow, the world’s largest beer by volume, with China Resources Enterprise Ltd.

In South Africa, a critical market, AB InBev will have to overcome opposition from several unions. A spokesman for the Congress of South African Trade Unions urged regulators to focus on the long-term impact of the merger, saying it would result in losses of jobs and revenue for the country.

Evercore ISI analyst Robert Ottenstein said the acquisition faces other risks in Africa because AB InBev has little experience in the market—although these could be mitigated if the Belgium-based brewer can retain key executives like Mark Bowman, SABMiller’s longtime Africa managing director.

Mr. Brito said keeping SABMiller staff in Africa “is very important” because “they know the markets, the people and customers.” He envisions a process similar to what followed AB InBev’s acquisition of Modelo. In that case, AB InBev sent a few of its executives to integrate the two companies, but “99% of the people” who remained were Modelo staff and they helped boost earnings before taxes in Mexico by more than 20% last year.

“They’ve got a lot of work to do, but they should be able to get it done,” said Mark Swartzberg, an analyst with Stifel Nicolaus & Co.

But integrating SABMiller is more complicated than any of AB InBev’s recent acquisitions. In the Modelo and Anheuser-Busch Cos. deals, it only had to bring on board a company operating in a single market—Mexico and the U.S., respectively.

AB InBev now will have to bring together operations across multiple continents and a host of countries, something it hasn’t done since it was created through a combination of Belgium-based InterBrew and Brazil-based AmBev more than a decade ago.

“These guys have never failed in the past but this is a lot more difficult, so we’ll see,” said Sanford C. Bernstein analyst Trevor Stirling.

AB InBev said it expects to achieve at least $1.4 billion in pretax cost savings a year by the end of the fourth year after the deal is completed, coming from areas like sourcing, packaging and bottling, as well as eliminating overlapping headquarters. The company won’t cut consumer-facing investment in sales and marketing.

AB InBev is paying £44 (about $66.50) a share for SABMiller, marking a 50% premium to its share price when deal talks began. For 41.6% of stock, AB InBev is offering a partial-share alternative, essentially a combination of cash and unlisted stock, translating into a lower per-share price of £41.85.

The alternative was designed for SABMiller’s largest shareholders: cigarette giant Altria Group Inc., which has a 27% stake in the brewer, and the BevCo Ltd. investment vehicle of Colombia’s Santo Domingo family, which holds a 14% stake. Altria expects to get a 10.5% stake in the combined company and two board seats. The Santo Domingo family is expected to receive about a 6% stake and one board seat, provided no other shareholders opt for the partial-share alternative.

AB InBev says it will keep a regional headquarters in Johannesburg and plans to seek to have its shares listed on the Johannesburg Stock Exchange as soon as possible. The combined company’s ordinary shares will be listed in Brussels, Johannesburg and Mexico. The American depositary shares will be listed in New York.

Please find the original story here: http://www.wsj.com/articles/ab-inbev-sabmiller-formalize-106-billion-dea...