SABMiller agrees AB Inbev takeover deal of £68bn

SABMiller has agreed to sell itself to Anheuser-Busch InBev for $104bn (£68bn) in a deal that will be the biggest takeover of a British company and create the world’s first global brewer.

The takeover, one of the top five deals in corporate history, will create a brewing empire making about a third of the world’s beer. AB InBev is already the world’s biggest brewer, and SABMiller is its closest rival.

The boards of the two companies said they had reached agreement in principle on the key terms of a “possible recommended offer” after SABMiller rejected repeated approaches by AB InBev over the past month.

SAB’s top managers will share a potential $2.1bn payout of shares and options if the deal is completed, according to analysts at Bernstein. Alan Clark, SABMiller’s chief executive, is likely to receive more than £80m.

The deal would create a company generating more than $70bn of annual revenue from brewing 80bn litres of beer a year. The giant corporation will have big operations in Europe, north America, Latin America and the Asia Pacific region, and will give AB InBev, the brewer of the US’s favourite beer, Bud Light, access to the fast-growing African beer market.

London-listed SABMiller said AB InBev – which brews Budweiser and Stella Artois – proposed to pay £44 a share in cash. It also proposed a partial share payment for the 41% of the company owned by SABMiller’s two biggest shareholders, Altria, the maker of Philip Morris cigarettes, and BevCo, owned by Colombia’s billionaire Santo Domingo brewing family.

The £44 cash offer values SABMiller, the maker of Peroni and Grolsch, at about 50% more than its value on 14 September, before news of AB InBev’s interest leaked. If all the shares were sold for that price it would value SABMiller at £71bn, but the £39.03 part-share alternative, devised for tax reasons, brings the valuation down to about £68bn.

SABMiller shares rose 8.6% on the news to £39.31. AB InBev had until 5pm on 14 October to lodge a formal bid after having five previous proposals turned down, including a £43.50-a-share approach on Monday. At SABMiller’s request, the takeover panel has extended its deadline for AB InBev to make a firm offer until 28 October.

SABMiller has negotiated a $3bn break-fee payable by AB InBev if the deal falls through because of competition hurdles or opposition by the latter’s shareholders.

The agreement in principle appears to settle a month of manoeuvres over a long-rumoured deal between the two companies. SABMiller rejected three approaches of £38, £40 and £42 a share in private before AB InBev tried to force the board’s hand by going public with a £42.15 proposal last week.

AB InBev’s chief executive, Carlos Brito, complained that SABMiller had refused to enter substantive talks and urged shareholders to put pressure on the board. SABMiller, led by its chairman, Jan du Plessis, said AB InBev’s approaches were opportunistic and “very substantially” undervalued the company, before accepting the latest proposal.

If completed, the takeover will secure AB InBev a target it has long coveted. Backed by Brazil’s richest man, the financier Jorge Paulo Lemann, the Belgian-Brazilian brewer has expanded aggressively through big deals including combining with Interbrew, the maker of Stella Artois, in 2004 and buying the US Budweiser brewer, Anheuser-Busch, four years later.

Brito said AB InBev decided to make a move after carrying out research on Africa, where SABMiller, founded in Johannesburg in 1895, is the dominant brewer. The charity ActionAid has criticised SABMiller for paying low taxes on its profits in Africa, including in Ghana.

AB InBev also learnt that Altria and BevCo would be receptive to an offer, Brito said, though his overtures split the two big shareholders at first. Altria, with a 27% stake, told SABMiller to enter talks last week but the Santo Domingos, with almost 14% of the shares, sided with the board in rejecting AB InBev’s earlier approaches.

James Edwardes Jones, an analyst at RBC Capital Markets, said: “SABMiller’s board, it is now apparent, has negotiated very effectively rather than frustrating its shareholders by clinging on to its independence.”

Brito said last week that the deal would be good for consumers because AB InBev would be able to sell its beers in Africa and other markets where SABMiller has big operations. But AB InBev has a reputation for ruthless cost-cutting and its US sales have been under pressure partly because beer drinkers have shunned big brands in favour of craft beer.

Adrian Tierney-Jones, the secretary of the British Guild of Beer Writers, said SABMiller had preserved the character of beers it had bought such as Pilsner Urquell in the Czech Republic. But he said creating a megabrewer raised concerns, especially as both companies have been buying craft beer producers.

“I don’t think it’s good for beer. The more things get bigger, the more you lose touch with what’s happening on the ground. The bottom line for these guys is profit,” he said.