The world's largest brewer Anheuser-Busch InBev (AB InBev) has set its sights on a takeover of rival SABMiller, which would create a mammoth global brewery worth $275bn (£177bn).
Shares in SABMiller shot up by nearly 20 per cent on the news, pushing the FTSE 100 to a one-week high during yesterday’s trading.
The prospective deal, which has become known as “megabrew” by financial analysts, would provide a huge shot in the arm for the City as M&A activity finally takes off.
It has been a bumper year for global M&A, with the $81bn Shell-BG deal currently topping a leaderboard that includes Charter’s $79bn bid for Time Warner and Heinz’s $62bn takeover of Kraft.
The value of M&A in the States has risen to a record high of $1.88 trillion, according to Dealogic, while the value of UK-related deals has climbed to its highest level since 2007.
SABMiller confirmed yesterday AB InBev had informed the board of its intention to acquire SABMiller, but said it had not yet received an offer.
The combined company would be worth around $275bn, and it is estimated AB InBev would have to pay more than $90bn for its rival, making it the biggest deal this year.
AB InBev has until 5pm on 14 October, according to London rules, to announce its intention to make an offer.
JP Morgan, Morgan Stanley and Robey Warshaw are acting as joint financial advisers to SABMiller, and Linklaters is its legal adviser. AB InBev is being advised by Lazard.
Banks on the AB InBev side of the deal could earn up to $115m, while those advising SABMiller stand to make up to $120m, according to Freeman Consulting Services.
AB InBev and SABMiller, the world’s two largest brewers, dominate the US beer industry, and SABMiller’s jointly owned Morson Coors has a 25 per cent market share.
The company would almost certainly have to sell off the brand to satisfy antitrust regulators, generating even more M&A business.
Wyn Ellis at Numis also identified SABMiller’s Chinese offering Snow, the world’s single largest beer brand, as a sell-off target, to satisfy regulators in China.
SABMiller’s other brands include Peroni and Grolsch, while AB InBev owns Budweiser, Stella Artois and Corona.
But it is their emerging market offerings that provide the “compelling rationale” for the deal, according to Ellis.
“Both brands are looking to consolidate, as they come under pressure from craft beers, spirits and wine,” he said.
AB InBev’s main interest in SABMiller is for its units in Latin America and Africa. There is “very little” overlap between the two firms’ businesses there.
Eddy Hargreaves at Canaccord Genuity points to AB InBev’s stronger management and the possibility of up to $3.5bn of savings, as well as a healthy premium, to satisfy SABMiller’s shareholders.
He estimates AB InBev will value SABMiller at 4,300p a share, up from Numis’ 4,100p.
SABMiller and AB InBev’s shares closed up 19.89 and 6.41 per cent.
BEHIND THE DEAL
Robey Warshaw is the new kid on the M&A advisory block having set up the firm in November 2014. They are already advising oil major BG Group on its takeover approach by Royal Dutch Shell, which was announced in April.
Robey, who is known as a forthright character in the City, was global head of M&A and head of UK at Morgan Stanley, having started his career at Lazard. He is chairman of the Royal Opera House.
Warshaw, known for his calm approach, was previously global head of investment banking at UBS, and is closely involved with the National Theatre, as a member of the Corporate Advisory Board.