The world’s top two beer makers agreed to join forces to create a company that would control nearly a third of the global market and bring together top U.S. brands Budweiser and Miller Genuine Draft.
After turning down five offers, British-based brewer SABMiller, accepted in principle an improved takeover bid worth 69 billion pounds ($106 billion) from Anheuser Busch InBev, which along with Budweiser makes Corona, Stella Artois and Beck’s.
AB InBev has to come up with a formal offer before October 28, 2015, if U.K. regulators grant an extension to the takeover talks. In that time, the two sides will work on the terms and conditions of the takeover offer as well as the financing of the deal.
The markets think the deal is now very likely and SABMiller’s shares were trading right near the bid price. In early afternoon trading in London, they were up 9 percent at 39.47 pounds. AB InBev’s share price was 2 percent higher at 100.30 euros in Brussels.
In statements, the two companies said the all-cash offer represents a premium of around 50 percent to SABMiller’s share price on Sept. 14, the last trading day before renewed speculation of an approach from AB InBev emerged.
According to Tuesday’s statements, AB InBev has agreed to pay $3 billion to SABMiller if the deal fails to close because of failure to get regulatory approval or the clearance of AB InBev shareholders.
Connor Campbell, a financial analyst at Spreadex, cautioned that a deal “is going to come under intense, potentially deal-ending, scrutiny from regulators.”
The new company would have annual sales of $73.3 billion and its market share of 31 percent would dwarf that of its next biggest competitor, Heineken, with 9 percent.
Market leader AB InBev already has six of the world’s largest beer brands. SABMiller, which is based in London, has Peroni, Grolsch and Milwaukee’s Best among its stable of beers.
For AB InBev, a deal would allow it to bolster its presence in Africa and Australia, where it is not as dominant as it currently is in Europe, North Africa and Asia.
The beer industry has been consolidating for the past decade as brewers seek to gain clout with suppliers, distributors and retailers.
AB InBev has a history of making acquisitions and will be looking to find cost savings from the deal as well as more clout with suppliers.
SABMiller employs 69,000 people in 83 countries. AB InBev has 155,000 workers in 25 countries.
Details of the savings have not been published yet and will probably have to wait until a deal is formally agreed upon.
