Academic journal article Business Case Journal

AB InBev's Offer for SABMiller (A): Pricey or Practical?

Academic journal article Business Case Journal

AB InBev's Offer for SABMiller (A): Pricey or Practical?

Article excerpt


"At the end of every great investment trend, there is a mega deal that rings the bell at the top of the cycle ... The AB InBev mega bid for SABMiller will be one of those bell ringing deals."

H. Sergeant

Jackie Herman saw the large envelope protruding from the mail stacked up on her desk. "Oh snap! I told myself I would review this proxy material from Anheuser-Busch InBev (AB InBev) last week." As she hefted the large envelope of information she had collected thus far, she knew why she had put off reviewing the details of the largest beer acquisition in history. On November 11, 2015, London-based SABMiller's board had agreed to sell to AB InBev. The price settled on was $67 a share valuing the takeover of SABMiller (SAB) at roughly $107 billion (Gara, 2015). If ultimately approved by the stockholders of each company and the myriad of countries where the two giants do business, it would be the largest beer acquisition and one of the biggest in corporate history.

Jackie wondered, "Would this mega-merger result in a brewing monopoly?" She knew some craft brewers opposed the deal as anti-competitive. Would it really hurt smaller, craft brewers? Was AB InBev overpaying for the acquisition? According to an article by Paul Davies (2015), of the Wall Street Journal, AB InBev's offer was 17.6 times SAB's forecasted 2015 earnings before interest, taxes, depreciation and amortization "EBITDA." In addition, the debt load of the newly created company would be almost 4.5 times the combined "EBITDA" for 2016 (Davies, 2015). She knew she had time before the shareholder vote, but she needed to get a start on evaluating the offer before she could figure out whether or not to support the deal.

The Offer and its Offshoots

The offer consisted of two parts. AB InBev offered 44 [pounds sterling] a share in cash accompanied by a partial share payment for the 41% of SAB owned by Altria and BevCo. Earlier SAB's board had rejected private, informal offers of 38 [pounds sterling], 40 [pounds sterling], and 42 [pounds sterling] per share before AB InBev went public with a 42.15 [pounds sterling] offer. The 44 [pounds sterling] price represented approximately a 50% premium over the stock price on September 14, 2015. SAB negotiated a $3 billion break fee should the deal not be approved by regulatory bodies (Farrell, 2015). In addition to $32 billion in internally generated cash AB InBev raised a record $75 billion bridge loan with a weighted average cost of Libor plus 110bp (roughly 2.4%) (Cooke, 2015). This bridge loan was a temporary financing measure composed of several tranches with maturities of 1, 3, and 5 years. AB InBev began retiring the short-term bridging loan after raising $42.5 billion in a bond offering in January of 2016 (Gjorgievska & Eddings, 2016). This first round of long-term debt was offered with a 30-year maturity and auctioned off with a rate of around 4.9%.

To head off antitrust issues in the US market, it was announced that SAB would divest its 59% stake in Miller Coors to its joint venture partner Molson Coors for $12 billion. The deal also included the global rights to the Miller brand and would make Molson Coors the second largest brewer in the US behind AB InBev (Bray, 2015). This divestment was particularly significant because SABMiller's stake in Miller Coors represented almost half of its total business in the United States. AB InBev was familiar with divestitures necessary to win regulatory approval. In 2013, it sold the US rights to brands such as Corona and Modelo to Constellation Brands to win regulatory approval of its deal to acquire Grupo Modelo (Trefis Team, 2015).

To gain regulatory approval in Europe, AB InBev accepted an offer valued near $2.9 billion from Asahi Group Holdings Ltd. for SAB's premium brands Peroni and Grolsch. Included in the sale to Asahi was British craft brewer Meantime as well as businesses in Italy and the Netherlands (Walker, 2016). …

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