Food & Beverage

SABMiller rejects AB InBev bid to build monster brewer

Is the SABMiller, AB InBev merger only about cost cutting?

U.K. brewer SABMiller has rejected Anheuser-Busch InBev's raised bid to buy the group for £42.15 per share in cash, which would have given it a value of nearly £68 billion ($103.6 billion).

The cash proposal represented a premium of approximately 44 percent to SABMiller's closing share price of £29.34 on 14 September. The group said it expected most SABMiller shareholders to accept the higher cash offer. Altria, SABMiller's largest shareholder with a 27 percent stake, said it supported the proposal.

Nonetheless, in a statement issued at 1pm London time, the brewer's board "excluding the directors nominated by Altria Group Inc".had turned down the proposal as it "still very substantially undervalues SABMiller, its unique and unmatched footprint, and its standalone prospects."

However, Andrew Holland, European and US beverage research analyst at Societe Generale expected the offer to be upped further to £44 per share. He expected shareholders to back discussions for a deal. "I think we're getting very much closer to the endgame."

"This is a pretty good deal for SAB shareholders. It's a rich premium from the close-end stock price before the deal was rumored," Philip Gorham, senior equity analyst at Morningstar told CNBC. "It represents great value for SAB shareholders and I think it's about as high as AB InBev can go."

Shares in SABMiller rose 1.1 percent in lunchtime trading in Europe, while AB InBev gained 2 percent.

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In a statement announcing the approach, AB InBev said it had already made two private cash proposals to the SABMiller board: The first at £38 per share and the second at £40 a share.

SABMiller brought forward the release of its trading update on Tuesday, highlighting sales growth.

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Any deal between the two international brewing giants would mean a broader geographical reach into fast-growing emerging markets: AB InBev has a strong presence in Latin America, while SABMiller sells across Africa.

"What ABI are building here is a monster of a brewer. It's going to be a phenomenal business," Gorham said. The deal is expected to help the group's long-term growth plans and allow it to move into new markets.

Will SABMiller accept AB InBev's takeover offer of £42.15 a share?

However, there are likely to be some regulatory hurdles to be cleared because of overlap between the two companies. SABMiller's joint venture with Molson Coors would be top of the list for sale if the mega-merger went ahead, according to a host of analysts. Unless it is sold off, a merged ABInBev/SABMiller would control close to 70 percent of the U.S. beer market, according to Mintel – which is unlikely to make it past U.S. competition authorities.

Analysts expect the group to overcome such hurdles however, given the importance of scale in the brewing business.

"There may be some smaller markets, like India or certain parts of Eastern Europe where there is an antitrust problem, but I don't think it's so significant that ABI can't dispose of a couple of assets in order to get this deal through. The greater prize is worth it," Gorham said.

If the deal goes through, the combined firm will present a significant challenge for competitors Heineken and Carlsberg. Analysts do not expect further mega-mergers in the sector, particularly given the reluctance of the Dutch brewing family that founded Heineken to reduce its controlling interest.

"They may be able to pick up some assets if ABI does have to dispose of some brands across the world, but I regard this deal as a significant negative for both Heineken and Carlsberg," Gorham said.

In a further indication of the activity in the emerging markets drinks industry, Diageo said Wednesday it had bought Heineken's 20 percent stake in Guinness Ghana Breweries, taking its shareholding there to 72.2 percent. It also sold its beer interests in Desnoes & Geddes in Jamaica to Heineken – D&G is best known for the Red Stripe brand.