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Top brewers reach accord: AB InBev, SABMiller strike deal amid boom in big M&A deals

Top brewers reach accord: AB InBev, SABMiller strike deal amid boom in big M&A deals

ZAGREB, Croatia — A wave of massive global acquisitions continued Tuesday as Belgium’s Anheuser-Busch InBev announced a basic agreement to buy British peer SABMiller for 71 billion pounds ($108 billion) in what would mark the food industry’s largest acquisition ever.

     If approved by antitrust regulators, the deal between the world’s top- and second-ranked brewers will create a giant with roughly 30% of the global beer market.

     AB InBev will pay 44 pounds per SABMiller share, a 50% premium over the company’s stock price before word of the merger discussion emerged in September. SABMiller’s top two shareholders will have the option of receiving AB InBev shares in lieu of a portion of the cash, letting them avoid a heavy tax burden. The winning proposal was AB InBev’s fifth.

     AB InBev is a leading player in North and South America. SABMiller has a head start in Africa, a highly promising market the larger brewer hopes to get a piece of.

     AB InBev is known for thorough cost-cutting and expanding economies of scale at its acquisitions. It is expected to take this tack at SABMiller, proposing cost reductions while streamlining distribution networks as well as malt and hops procurement.

     While 41% of SABMiller’s stock is expected to be converted into AB InBev shares, the Belgian company will need tens of billions of dollars more to buy the remainder. It has reportedly been working with multiple financial institutions over the past year to line up a huge syndicated loan.

     For SABMiller, which rebuffed AB InBev’s previous offers, rejecting this overture would have risked criticism from shareholders supporting the deal. The brewer’s stock price has moved largely in tandem with speculation on the acquisition, and the prevailing view held that it could not reach AB InBev’s proposed purchase price on its own. The company concluded that an offer of 44 pounds per share was tough to pass up.

     The two brewers have some 400 brands between them. Their combined market capitalization exceeds that of Nestle, the world’s largest food company, and their aggregate sales are among the highest in the consumer goods sector.

     But the deal will likely run afoul of antitrust laws in the U.S. and China. Some businesses will undoubtedly need to be sold off to ensure that the transaction goes through. AB InBev has said it is already working with regulators in the two countries.

Market pressure

Announced global merger and acquisition activity for 2015 totaled $3.46 trillion through Tuesday, already topping the $3.35 trillion figure for all of 2014, according to Thomson Reuters. The AB InBev-SABMiller deal is part of a recent cluster of big acquisitions that also includes Dell’s agreement to buy data storage company EMC for $67 billion and General Electric’s planned sale of a portion of its financing operations to Wells Fargo for $32 billion.

     Companies in Europe and the U.S. have used money gained from efficiency improvements implemented after the global financial crisis to boost shareholder returns. But markets have grown so accustomed to this that share repurchases and dividend hikes alone do little to move the needle on stock prices. Shareholders having trouble finding promising targets in which to reinvest the money they get back from dividends are demanding medium- to long-term growth scenarios. Companies announcing acquisitions have often seen share price bumps of late, said Hernan Cristerna, J.P. Morgan’s global co-head of M&A.

     And with the global economy slowing, businesses have a tougher time maintaining growth with their own resources alone, making acquisitions an increasingly popular option.

     Also encouraging bigger deals is the ease of borrowing money at low interest rates to finance purchases. Many executives are looking to make acquisitions before the U.S. raises rates.

Top brewers reach accord: AB InBev, SABMiller strike deal amid boom in big M&A deals

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