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AB InBev-SABMiller Merger OK'd in UK, to Close on Oct 10

TAP BUD MO HEINY

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The mega-merger of the Belgian-American Anheuser-Busch InBev SA/NV (BUD - Free Report) , alias AB InBev, and the Anglo-South African SABMiller plc has finally cleared all hurdles. The last in the line was the approval of the High Court of Justice in England and Wales regarding the scheme of arrangement for implementation, which was approved on Oct 4.

With the merger now ready to take-off, AB InBev revealed that the first step towards the execution of the merger agreement is delisting of SABMiller shares on the London Stock Exchange, effective Oct 5.

AB InBev expects to close the acquisition on Oct 10, almost a year after the deal was originally proposed. The new company will retain the AB InBev banner and SABMiller will cease to trade under its current name in the U.S., starting Oct 11.

The Background

AB InBev and SABMiller had reached an agreement to create the “first truly global beer company,” back in Oct 2015. After clearing all regulatory hurdles in August, AB InBev and SABMiller received unanimous support from its shareholders for the deal worth at over $100 billion on Sep 28, thus clearing a major roadblock for the big beer merger. The deal gathered votes from a larger-than-required margin as 95.5% of SABMiller’s shareholders supported the takeover. However, approval from only 75% shareholders was needed, excluding the company's two largest stakeholders – U.S. tobacco company Altria Group Inc. (MO - Free Report) and Colombia investor group Bevco.

Altria and Bevco, which together hold a 41% stake in SABMiller, had previously given their nod to the deal against a separate cash-and-stock offer from AB InBev and as was approved by the U.K. Scheme Directions Hearing on Aug 22.

What the Mega-Brew Merger Has in Store?

As this massive takeover nears completion, it would be right to evaluate who gains what out of the deal and where the brewing industry is headed from here. The deal is likely to lay foundations to a mega-brewing company that will control about one-thirds of the global beer market, leaving behind Heineken NV (HEINY - Free Report) , which holds about an 11% market share of the industry. Moreover, it will expand the company’s share in the global beer profits and worldwide volumes, growing to nearly 46% and 27%, respectively. This means that the new entity’s share in global beer profits will grow four folds, and its volumes will double that of Heineken.

Further, it will fortify AB InBev’s presence globally, lowering its reliance on the mature U.S. and struggling Brazilian markets, while gaining exposure to 17 African countries and the fast-growing Latin American markets, such as Colombia and Peru. The takeover comes at an opportune time for AB InBev as it is struggling to revive its Budweiser brand in the U.S. – its largest market, and continues to face an economic downturn in Brazil – its second-largest market.

As for the industry, this merger is going to be a one-off event as it is probably going to change the face of the beer industry. Apart from being mutually beneficial, the deal should benefit many rival brewers who got their hands on the portions of SABMiller that AB InBev was forced to sell-off in order to back regulatory approvals in various countries. For this, the company sold SABMiller brands including Miller Lite, Peroni and Snow, which are among the world’s leading beer brands.

Further, in a bid to please U.S. regulators, AB InBev disposed SABMiller’s 58% stake in its joint venture MillerCoors LLC to Molson Coors Brewing Co. (TAP - Free Report) for $12 billion. This will make Molson Coors, which previously held a 42% stake in MillerCoors, the major stakeholder in the joint venture. Additionally, this will lift Molson’s ranking amid the world’s most-profitable brewers from fifth to third, according to analysts. Further, this will make Molson the second-largest brewer in the U.S. with a 25% market share.

Thus, this deal is expected to benefit the entire brewing industry as it has bolstered the position of many rivals, making competition tough for AB InBev itself. However, we believe the combined entity will be strong enough to handle competition from these rivals with a portfolio of brands including leading names like Budweiser, Stella Artois, Corona and Castle Lager.

AB InBev currently holds a Zacks Rank #2 (Buy), while SABMiller carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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