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AB InBev seeks $275bn merger with SABMiller

Sep 16, 2015, 4:21 PM EDT
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AB InBev is seeking a merger with SABMiller that would create a combined firm worth $275 billion. The world’s largest brewer by sales said Wednesday that it planned to make an offer to buy SABMiller, a long-awaited deal that would bring together companies controlling 30% of global beer volumes, reports the Wall Street Journal. The timing, at least from AB InBev’s standpoint, makes some sense. SABMiller has underperformed other beer companies this year, thanks to its huge emerging-markets exposure. Nearly 70% of its sales are made in China or markets reliant on commodities like Nigeria, Australia or sub-Sahran Africa, notes Barclays, the highest in the European staples sector.

Longer-term this should translate into higher growth. Indeed, increasing its exposure to markets like Colombia, Peru and in Africa may be part of the appeal for AB InBev. But given current anxieties, SABMiller’s valuation had dropped to about 18 times forecast earnings, a slight discount to the sector. Over the past year, the stock has underperformed AB InBev by about 30 percentage points.SABMiller still won’t come cheap. Even before the deal announcement, its valuation was at a slight premium to its five-year average of about 18.3 times. Its substantial shareholders, Altria and Colombia’s Santo Domingo family, from whom SAB bought Bavaria in 2005, together control more than 40% of the company. But AB InBev’s formidable reputation in slashing costs means a deal helps to offset concerns about its own slowing growth. The fact that big investors like Altria may prefer to take shares, rather than cash for tax reasons could ease financing constraints, in a deal that could top $100 billion.

A merged group would have a market value of around $275 billion at current prices, and would combine AB InBev's dominance of Latin America with SABMiller's of Africa, both fast-growing markets, as well as their breweries in Asia, writes Reuters. "The real attraction is Africa, where AB InBev has no presence, as well as some add-ons in Asia and Latin America," said Societe Generale analyst Andrew Holland.

AB InBev and other top brewers are trying to move into new markets as they look to shrug off weakness in North America and Europe, where consumers increasingly choose craft beers made by independent players or wine or spirits. SABMiller, the world number two and maker of more than 200 beers including Peroni, Grolsch and Pilsner Urquell, said on Wednesday it had been informed that AB InBev intended to make an offer which it would have to do by Oct. 14 under British rules.

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