World's biggest brewer targets SABMiller in $275bn deal

The world’s largest brewer AB Inbev has approached SABMiller about a deal that could create a $275bn (£177bn) colossus in the world’s drinks industry, behind one in three of the beers produced globally.

The UK-based SABMiller has revealed that the Stella Artois and Corona maker AB Inbev has told it it intends to make a takeover offer for the group, which produces Peroni and Grolsch.

News of the approach sent shares in SABMiller surging nearly 20 per cent, or 599.5p, to 3,614p in London, valuing the company at £58.5bn. In Brussels AB Inbev jumped more than 6 per cent to €100.50, giving it a market capitalisation of €162bn.

A combination would rank as one of the six largest corporate takeovers ever, creating a business with some 224,000 employees.

SABMiller said its board “will review and respond as appropriate to any proposal which might be made”. AB Inbev added that its “intention is to work with SABMiller’s board toward a recommended transaction”.

Under Takeover Panel rules, AB Inbev now has until 14 October to table a firm offer or walk away.

If the companies did tie-up, it would combine AB Inbev’s dominance in Latin America with SABMiller’s Africa presence, where it is the market leader in 15 countries. It would also strengthen both their grips on the lucrative South American market.

The former had a 20.8 per cent share of the global beer market last year, while the latter had a 9.7 per cent stake, according to Euromonitor, meaning any deal would be scrutinised by competition authorities in many countries.

Analysts said it was likely a combined group would have to sell off major businesses in the US and China to get a deal past regulators. Between them, SABMiller and AB Inbev have about 70 per cent of the beer market in the US, although their share is being chipped away by the growing success of so-called craft beers, brewed by small and microbreweries.

However, any takeover would also give the North American beer group Molson Coors the option of buying out SABMiller from their joint venture there, MillerCoors, which has about a quarter of the market.

Any merged group may also have to sell interests in China, where SABMiller’s CR Snow joint venture with China Resources 0291.HK is the market leader. Heineken, Carlsberg or China’s Tsingtao could be potential buyers

Christian Davis, the editor of Drinks International believes the move to act on the deal now is owing to pressure in the beer market: “Beer consumption is pretty flat if not declining in many mature markets,” he said. “That, plus the rise of so-called ‘craft beers’, have put pressure on these global brewers and their shareholders.”

Shares in other drinks groups such as Carlsberg and Heineken also rose amid speculation SAB might seek another merger as a defence strategy, as it did last year when it offered to buy Heineken, but was rebuffed.

The two brewers

SAB Miller

Altria, the maker of Malboro cigarettes could be key to whether a deal can be sealed. The US tobacco giant owns 27 per cent of London-listed company SABMiller, which dates back to 1895, when South African Breweries was founded in Johannesburg.

South African Breweries grew internationally and in 2002 it acquired the Miller Brewing Company, the second-largest brewer in the US, and then Fosters in Australia. In May it announced that it was buying London-founded craft brewer Meantime Brewing Company.

It is now the second-biggest beer producer in the world with a dominant position in the African market and about 69,000 employees across 80 countries. T

It also has large operations in the UK and owns other brands including the Polish beer Tyskie, and Nastro Azzurro. Colombia’s Santo Domingo family is another major shareholder.

AB Inbev

Jorge Paulo Lemann, the Brazilian financier who recently engineered the merger of the US food giants Heinz and Kraft with the veteran American investor Warren Buffett, was the driving force behind the the creation of the world’s biggest brewer, AB Inbev – and behind much of the consolidation of the industry in the past 10 years.

He merged AmBev, his Brazlian brewer, with Belgium’s Interbrew in 2004 to create the world’s largest brewer, which in 2008 took over the US group Anheuser-Busch,maker of Budweiser, in a then record $52bn cash deal. Today the Belgium-headquartered InBev has around 155,000 employees in 25 countries. It is listed on the Euronext exchange in Brussels.