SABMiller accepts $106 billion AB InBev offer in largest takeover of a UK company

SABMiller (SAB.L) accepted a takeover proposal at the fifth time of asking after Anheuser-Busch InBev (ABI.BR), the world's largest brewer, set out a cash-and-share package currently worth 69 billion pounds ($106 billion).

The deal to create a brewer making almost a third of the world's beer would rank in the top five mergers in corporate history and be the largest takeover of a UK company.

After repeated rebuttals from its next largest rival, AB InBev said on Tuesday it was willing to pay 44 pounds in cash per SABMiller share, with a partial share alternative set at a discount and limited to 41 percent of SABMiller shares.

SABMiller said it had indicated to AB InBev that its board would be prepared to accept the offer and said it had asked for a two-week extension to the deadline set for its rival to announce a firm intention to bid. The new deadline is 28 October. 

The new group would combine AB InBev's Budweiser, Stella Artois and Corona lagers with SABMiller's Peroni, Grolsch and Pilsner Urquell.

AB InBev would add certain Latin American and Asian breweries to its already large presence and, crucially, see it enter Africa for the first time.

The parties have agreed that AB InBev would pay a break fee of $3 billion to SABMiller in the event the transaction fails due to the significant regulatory issues or because AB InBev shareholders do not back it.

The new offer unveiled on Tuesday surpasses a Monday proposal set at 43.50 pounds in cash and is 50 percent above SABMiller's shares on Sept 14, the day before speculation surfaced about an impending AB InBev approach.

The partial share alternative remains, designed for SABMiller's two main shareholders, cigarette-maker Altria (MO.N) and the BevCo company of Colombia's Santo Domingo family, who own 40.5 percent of the UK-based brewer.

Were they to accept the discounted alternative and all other shareholders took cash, the offer would be worth 69 billion pounds at current prices.

SABMiller shares were up 8.9 per cent at 0720 GMT, while AB InBev's were 3.8 per cent higher.

"There's so much we don't know – we don't know what costs they'll take out, we don't know what they'll get for the asset sales that they'll have to make. But if you make reasonable assumptions about those, I think it's a pretty good price all around," said Morningstar analyst Phil Gorham.

LURED BY AFRICAN GROWTH

Africa is expected to see a sharp jump in the legal drinking age population in coming years and a fast-growing middle class more willing to switch to lagers and ales from illegal brews.

In western Europe and North America beer volumes have steadily declined in the past two decades and U.S. consumers in particular have shifted to craft brews made by small players.

For many observers this would be the final chapter of consolidation in brewing. The big four, AB InBev, SABMiller, Heineken (HEIN.AS) and Carlsberg (CARLb.CO), are already present across the globe and brewing more than half of the world's beer.

Antitrust issues would likely lead to sales of assets in the United States and China and impact soda makers and bottlers. SABMiller has deals with Coca-Cola (KO.N) and AB InBev ties with PepsiCo (PEP.N).

AB InBev, partly controlled by 3G Capital, a private equity fund run by a group of Brazilian investors, said it had agreed that SABMiller shareholders would still be entitled to dividends up to a certain level for the year ending in March 2016.

AB InBev still needs to secure support from Altria, which backed a lower offer last week, and BevCo, which rejected that 42.15 pound cash proposal.

The agreement with SABMiller marks a further success for 3G, after previously orchestrated takeovers of Burger King, ketchup maker Heinz (KHC.O) and Kraft Foods. However, AB InBev, known for cost-cutting prowess, will have to be as sharp as possible to ensure the deal makes financial sense.

AB InBev has previously said it should not have any trouble funding the transaction, with a net debt to core profit (EBITDA) set to fall to a comfortable two times next year. Banking sources say it is already lining up $70 billion of debt financing.