Interbrew mulls deal with Brazil's AmBev

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The Independent Online

Interbrew, the Stella Artois and Beck's beer business, yesterday announced it was in talks with Companhia de Bebidas das Americas (AmBev), the Brazilian brewer, that could lead to a "significant transaction", according to the companies. The statement immediately fuelled speculation of a $23bn (£12bn) mega-merger between the two that would create the world's second-biggest beer producer.

However, the news that the leading European brewer and the dominant South American player were in talks led to immediate speculation that Anheuser-Busch, the world's biggest brewer and the maker of Budweiser, could be prompted into an offer of its own for AmBev.

The brewer's leading position in Brazil, one of the world's biggest beer markets, has long made it a favourite among -analysts to be snapped up by Anheuser-Busch. But the US brewer, which has a market value of $42bn, has maintained a highly conservative approach to mergers, especially outside its domestic boundaries.

Yesterday's announcement lacked any detail of the proposed deal. It could still fall short of full scale merger. Some speculation centred on the possibility the pair were in talks about Interbrew's 30 per cent stake in Femsa, a Mexican brewer. AmBev could buy out Interbrew's Femsa interests in return for a small share stake in AmBev and possibly a distribution deal for Interbrew's brands in the US.

But expectations in the global brewing industry were on a more significant deal between Interbrew and AmBev creating a business with sales of $12.5bn. Shares in other large brewers rose on the news of the talks. The world No 2, SABMiller, saw its shares rise 2.8 per cent while Scottish & Newcastle's shares climbed 2.3 per cent as the London stock market reacted to the renewed speculation of consolidation in the global brewing industry.

Central to the fate of AmBev will be its president Marcel Telles, who controls the voting shares of the business through a complex capital structure. AmBev has two different classes of share. One is a non-voting stock that owns 63 per cent of the economic interest in the company. Of these shares, the public hold 93 per cent with the balance being held by Mr Telles and an organisation called the Zerrenner Foundation that Mr Telles also controls.

The other class of shares in AmBev have all the voting rights plus the remaining 37 per cent of the economic interest in the company. Of this latter class of shares, the public own 26 per cent while company insiders, including Mr Telles, the Zerrenner Foundation and Braco SA, another Telles vehicle, holds nearly 50 per cent. Last night analysts were pondering the strategic logic of a tie up between AmBev and Interbrew.Graham Eadie of Deutsche Bank said: "Strategically it makes a lot of sense. The real issue will be the structure of any deal."

A merger would give Interbrew exposure to the fast growing Latin American markets while AmBev shareholders would access the more stable, hard currency earnings of Western Europe and North America where Interbrew has its operations. It owns Rolling Rock and Labatt Blue as well as specialist beers such as Leffe. But because the brewers do not have overlapping businesses, there would be few cost savings.