U.S. Markets open in 3 hrs 43 mins

AB InBev launches SAB bid, to sell MillerCoors stake

View of the Anheuser-Busch InBev logo outside the brewer's headquarters in Leuven February 26, 2014. REUTERS/Francois Lenoir

By Philip Blenkinsop and Martinne Geller

BRUSSELS/LONDON (Reuters) - Anheuser-Busch InBev (ABI.BR), the world's biggest brewer, launched its $100 billion-plus offer for nearest rival SABMiller (SAB.L) on Wednesday and agreed to sell the latter's stake in U.S. venture MillerCoors to help win regulatory approval.

AB InBev, whose takeover of SABMiller would be one of the largest mergers in corporate history, said it expected to achieve $1.4 billion in annual savings four years after completion of the deal, projected for the second half of 2016.

The deal currently worth about 70 billion pounds, or $106 billion, was clinched with an agreement for Denver-based Molson Coors (TAP.N) to take over SABMiller's 58 percent stake in their venture, MillerCoors, for $12 billion.

That price tag is higher than some analysts expected, given the small group of potential buyers. However, they had not anticipated it including global rights to the Miller brand, which will nearly double the amount of beer Molson sells internationally.

At the same time, the savings target, worth about 9 percent of SABMiller's sales, is lower than expectations, although it does come on top of the $1.05 billion that SABMiller had already pledged during the bidding process.

The merger will combine AB InBev's Budweiser, Stella Artois and Corona brands with SABMiller's Peroni, Grolsch and Pilsner Urquell and brew almost a third of the world's beer, dwarfing rivals Heineken (HEIN.AS) and Carlsberg (CARLb.CO).

The takeover, which SABMiller's board provisionally accepted last month, would be the largest of a British-based company and the fourth-biggest overall of any corporation. It will be backed by a record $75 billion loan.


AB InBev is already leader in the United States, Brazil and Mexico, three of the top four markets in terms of profits.

With SABMiller, it is buying into Latin American countries such as Colombia and Peru and crucially, Africa, at a time when markets such as the United States are weakening as drinkers shun mainstream lagers in favor of craft brews and cocktails.

Africa, where SAB operates in 16 countries, is expected to see a sharp rise in people of legal drinking age and has a fast-growing middle-class developing a taste for branded lagers and ales. Beer consumption there will grow by more than anywhere else over the next five years, say industry experts Plato Logic.

The acquisition allows AB InBev to draw level with Unilever (ULVR.L) as the fourth-biggest consumer goods company with annual revenue of $64 billion. However it will overtake Nestle (NESN.VX) as the sector's biggest profit generator.

AB InBev said it would seek a secondary listing and regional headquarters in Johannesburg, where SABMiller was founded 120 years ago.

The transaction is also a "game changer" for Molson Coors, its CEO Mark Hunter said, as it gives the maker of Coors Light and Blue Moon nearly 28 percent of the U.S. market, making it the second largest player.

It would add nearly $5 billion a year in sales and nearly $1 billion in operating income.


AB InBev is offering 44 pounds per SABMiller share, along with a discounted alternative of mostly shares, designed for SABMiller's two largest shareholders: cigarette-maker Altria (MO.N) and BevCo, the vehicle of Colombia's Santo Domingo family, who together own 40.5 percent of the target company.

Those shareholders have accepted the alternative offer, the two brewers said in a joint statement. Altria said it expected to book a post-tax gain of $8 billion when the deal closed.

SABMiller shares were up 2.0 percent at 40.54 pounds at 1515 GMT (10:15 a.m. ET) on Wednesday, with gains limited by a degree of uncertainty around regulatory hurdles before the transaction is concluded. The shares have gained almost 40 percent since speculation about an AB InBev approach emerged two months ago.

However, AB InBev's confidence that the deal will go through is high, reflected by a potential $3 billion fee if it fails.

"With today's developments, execution is still important but they have a bit of breathing room," said Morningstar analyst Philip Gorham.

AB InBev shares were up 1.6 percent. Analysts said the cost-conscious company would probably exceed its $1.4 billion savings target, having done so after previous acquisitions in the United States and Mexico.

"This is the estimate going in," said Bernstein Research analyst Trevor Stirling. "This is guaranteed and there may well be potential for more."

The company said the biggest proportion of savings will come from combining headquarters and removing overlapping administration costs, but will also come from scale-based efficiencies in brewing, distribution and procurement.

While the MillerCoors stake sale is aimed at satisfying U.S. regulators, it remains to be seen whether the new company will have to divest SABMiller's 49 percent stake in CR Snow, the largest brewer in China, where AB InBev already has about 14 percent of the market.

AB InBev Chief Executive Carlos Brito declined to comment on China or its future as a bottler of PepsiCo (PEP.N) drinks, given that SABMiller bottles Coca-Cola (KO.N) drinks.

Also unclear is the future of SABMiller's relationship with French wine maker Castel Group and stake in Turkish brewer Anadolu Efes (AEFES.IS).

AB InBev's lead advisers are investment bank Lazard and law firm Freshfields Bruckhaus Deringer. SAB's advisers include Robey Warshaw, JP Morgan and Morgan Stanley and law firm Linklaters.

(Editing by Keith Weir and Susan Fenton)