A-B InBev formalizes offer to buy SABMiller
Updated 9:33 a.m. , Nov. 11 with announcement of formal offer -
Anheuser-Busch InBev has put forth a formal offer to takeover rival brewer SABMiller. The announcement follows word last month that the companies had an agreement in principle on a deal worth more than $100 billion.
In an effort to clear regulatory hurdles in the U.S., Molson Coors will buy out SABMiller's interest in a joint venture. That means A-B InBev, which brews Budweiser, will not own SABMiller's U.S. business or the global rights to the Miller brand.
Anheuser-Busch InBev and SABMiller have announced an agreement in principle on plans to become one company. The deal is valued at more than $100 billion.
At least one longtime beer industry observer says the potential combination of the beer giants will not have much of an immediate impact on St. Louis operations.
“There have been rumors for decades that St. Louis brewery will be closed. It will not be closed," former Anheuser-Busch executive Bill Finnie tells St. Louis Public Radio.
“It won't be closed in my lifetime or my son's lifetime.”
Most of Anheuser-Busch’s decisions are made in New York, but Finnie does not anticipate the company moving its North American headquarters out of St. Louis.
“The cost of living in St. Louis is about 50 percent cheaper than in New York City. They have lots of free office space here in St. Louis. In fact they are only utilizing maybe half the office space that existed prior to 2008. So they have a lot of vacant space for growth in the future if they need it."
Although the boards of both brewing companies are supporting the agreement, a final, formal offer is still forthcoming.
A-B InBev had been facing a Wednesday regulatory deadline in the United Kingdom to put forth a formal deal, but as part of the agreement in principle, SABMiller, which is based in London, was granted an extension. The new deadline is Oct. 28.
It might not be smooth sailing beyond that date. Several industry observers note regulators will have anti-trust concerns about the possibility of a beer behemoth.
“The anti-trust people will demand that SABMiller spin-off the Miller Brewing Company in the United States before the deal is done,” says Finnie, who currently serves as an adjunct professor of strategy at Washington University's Olin School of Business.
There are expected to be anti-trust issues in China involving that country’s top-selling Snow brand. It is controlled by a joint venture involving SABMiller and China Resources Enterprise Ltd.
But A-B InBev appears to be confident that the merger will clear regulatory hurdles. It has committed to paying SABMiller $3 billion if the deal falls through.
Overall, a combined company could strengthen Anheuser-Busch’s position in the U.S.
“It will make A-B InBev slightly stronger financially,” says Finnie. “It will have more money to spend on sales and marketing.”
Brittany Weissman, an equity research analyst at Edward Jones in St. Louis says gaining a foothold in Africa is one of the key factors driving the acquisition. She says demand for beer on that continent is growing at a faster rate than more developed markets including the U.S. and China.
She says the companies are fairly certain they'll have to unload MillerCoors to gain regulatory approval in the U.S.
"China's a little less certain. They would only have about 40 percent combined market share, so it might be a little bit more of a wait-and-see what the regulators say there. But I think they are more than prepared to divest SABMiller's stake in the C-R Snow joint venture as needed," Weissman said.
Weissman said A-B InBev's willingness to pay a $3 billion breakup fee shows it is confident the merger will gain regulatory approval.
"I think they've done their homework and they are willing to divest whatever they can divest in order to make this deal go through," Weissman told St. Louis Public Radio.
She agrees with Finnie that the companies will have to unload MillerCoors in the U.S. and a joint venture in China before the merger is finalized.
The agreement on key terms follows a month of back and forth between the two brewing giants. SABMiller had rejected previous offers, saying they undervalued the company.
The brewer has operations in more than 80 countries and employs around 70,000. A-B InBev, which is based in Belgium, has roughly 155,000 workers around the world.
A combined company would produce roughly 30 percent of the world’s beer.