Interactive Investor

Belgians pay £70bn for Foster's brewer SABMiller

13th October 2015 10:33

Lee Wild from interactive investor

With just a day to go before being forced either to launch a formal bid, or walk away, brewing colossus Anheuser-Busch InBev appears to have got its man. SABMiller, for weeks a reluctant bride, has now told the Stella Artois and Budweiser firm it would accept an all-cash offer worth £44 a share, valuing the brewer of Foster's and Peroni lager at around £70 billion.

Of course, this is only an "agreement in principle on the key terms of a possible recommended offer", and despite a 9% surge in the share price Tuesday, SABMiller shares still trade at a 10% discount to the offer price, implying this is not a done deal. However, SABMiller's largest shareholder Altria, which has a 27% stake, has already formally backed a previous approach at a lower price. All, then, hinges on 14% stakeholder BevCo Ltd - it's owned by the Colombian Domingo family - although SABMiller's agreement suggests they, too, are onboard.

If the deal does go through, long-term SABMiller shareholders will have made ten times their money - the shares traded at less than 400p in 2003. Short-term traders will be quids-in, too, with AB InBev's offer 50% more than the share price one month ago when speculation about a bid resurfaced (see chart below).

And SABMiller chiefs put up a staunch defensive. They batted back offers of £38, £40, £42 and then £42.15. We said last week that "an extra 15p will not swing it", but the £43.50 offer tabled yesterday was obviously close, and the Belgian giant has found the extra 50p to nail the deal. There's also a partial share alternative for the 41% of the SABMiller owned by Altria and BevCo.

It will take great skill getting this merger past regulators, though. Combining the world's two largest brewers will create an industry behemoth selling booze in virtually every major beer market as well as high-growth emerging markets. Annual revenue would come in at $64 billion, generating cash profits of $24 billion. According to Barclays analysts, total cost savings from a tie-up could also be as high as $1.8 billion.

AB InBev is clearly confident of success. It will agree to a so-called reverse break fee of $3 billion payable to SABMiller if the deal "fails to close as a result of the failure to obtain regulatory clearances or the approval of AB InBev shareholders".

The takeover panel has agreed an extension in the deal deadline to 5 pm on 28 October, two days before AB InBev's third-quarter results. In the event that there is no deal, Barclays sees downside risk in SABMiller shares to £32-£33.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.