Beer mega-merger likely to encounter competition run-in

Brewers AB InBev and SABMiller still to agree the terms of a formal offer. Picture: Getty
Brewers AB InBev and SABMiller still to agree the terms of a formal offer. Picture: Getty
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A TIE-up between Anheuser-Busch InBev and SABMiller to create a brewing behemoth responsible for almost a third of the world’s beer production is likely to face several competition hurdles and trigger job losses, analysts yesterday cautioned.

The worlds’ two biggest beer makers yesterday “agreed in principle” on a £70 billion merger after the board of UK-based SABMiller said it would give its blessing to a fifth proposal from its sole larger rival.

The pair still have to agree the terms of a formal offer, but have extended the deadline to make a firm bid under City takeover rules to 28 October.

If a deal does go ahead, the combined mega-brewer could be worth up to £180bn and have more than three times the market share of the next biggest beer company, Heineken. It would also mark the biggest foreign takeover of a British-based firm.

The new group would combine AB InBev’s core Budweiser, Stella Artois and Corona brands with SABMiller’s Peroni, Grolsch and Pilsner Urquell. Belgium-headquartered AB InBev would add certain Latin American and Asian breweries to its already large presence and enter the potentially lucrative African market for the first time.

If AB InBev cannot get the green light from regulators for the deal or if its shareholders do not back the takeover, the brewer would have to pay SABMiller a hefty break fee of $3bn (£2bn).

There are likely to be significant competition hurdles to any marriage, particularly in the US, where the companies would have an estimated 70 per cent of the beer market.

Bernstein Research beverage analyst Trevor Stirling put the chances of the deal going through at 80 per cent, with competition issues being the main risk. “There is a chance that due diligence throws up something nasty,” he added.

Stuart Whitwell, joint managing director of Intangible Business, said: “With world renowned brands… the combined firm will need to carefully select the brands to divest in order to reduce their overall market share and comply with competition laws.”

Phil Carroll, an analyst at Shore Capital, said: “All in all it looks like a deal is now pretty close and although many hurdles remain on the way to getting to a completed deal, we expect AB InBev’s proposal to now become firm in due course with a recommendation from SAB’s board.”

Professor John Colley of Warwick Business School said to “expect substantial redundancies”, potentially in head offices and country management teams.

The proposed £44-a-share offer is the fifth made by AB InBev in recent weeks, with the group having already tabled bids worth £38, £40, £42.15 and £43.50 a share.

SABMiller previously spurned the advances, claiming the offers “substantially undervalued” the business. The latest offer came a day before the original “put up and shut up” deadline for AB InBev to make a firm offer or walk away for six months.