Confirming market speculation, brewer Anheuser-Busch Companies Inc. (BUD) and its Belgian rival InBev NV on Monday announced a deal to combine the two companies for $70 per share in cash, with an aggregate equity value of $52 billion. Both companies' Boards of Directors have unanimously approved the transaction, and the combined company will be called Anheuser-Busch InBev. The deal is expected to be complete by the end of 2008. Upon the completion of the transaction, Anheuser-Busch will become a wholly owned subsidiary of InBev.
InBev's original offer of $65 per share had drawn stiff resistance from Anheuser-Busch, saying the offer is financially inadequate and not in the best interests of its shareholders. In a move to soften Anheuser-Busch's stance, InBev sweetened its offer by $5 per share last week. However, reaching a merger deal had been largely considered an uphill struggle for InBev as the deal was vehemently opposed by Anheuser-Busch's founding family members, including President and Chief Executive Officer August Busch IV. At the same time, Anheuser-Busch faced criticism for rejecting the deal, which was supported by some of its largest shareholders. InBev had also filed a preliminary consent solicitation statement with the U.S. Securities and Exchange Commission seeking to remove the board members of Anheuser-Busch and provide shareholders an opportunity to have a direct voice in the proposed combination with InBev.
The combined company is expected to be a global leader in the beer industry and one of the world's top five consumer products companies. The expanded company will be geographically diversified, with leading positions in the world's top five markets, China, U.S., Russia, Brazil and Germany.
St. Louis, Missouri will be the combined company's headquarters for the North American region and global home for its flagship Budweiser brand. About 40% of the combined company's revenues will be generated in the U.S. and all of Anheuser-Busch's U.S. breweries will remain open. The U.S. beer market, valued at about $97 billion, is the second largest in the world by volume, next to China. Beer tops the list of alcoholic beverages in the U.S. with a 57% market share.
InBev Chief Executive officer Carlos Brito will be chief executive of the combined company. The Board of Directors of the combined company will include the existing directors of the InBev Board, Busch IV and one other current or former director from the Anheuser-Busch Board. The combined company's management team will be selected from key members of both the companies' current leadership.
The two companies already have a U.S. distribution partnership for InBev's European premium import brands including Stella Artois, Beck's and Bass. Anheuser-Busch's sales and distribution system will continue to support the expansion of these brands in the U.S. market. Also, Budweiser and Bud Light are the largest selling beers in the world, and the combined company will have an unmatched portfolio of imports, local premiums and local core brands.
Further, Anheuser-Busch has equity investments in two companies, Mexico's Grupo Modelo, which owns Corona Extra, and Chinese brewer Tsingtao. InBev's business in southeastern China is expected to be enhanced by Anheuser-Busch's strength in northeastern China. Meanwhile, Grupo Modelo said Monday that it has evaluated the proposed transaction between Anheuser-Busch and InBev, as the company has certain rights regarding the transaction, including consent right.
On a pro-forma basis, the combined company would have generated 2007 global volumes of 460 million hectoliters, leading to revenues of $36.4 billion, or 26.6 billion euros, and EBITDA of $10.7 billion, or 7.8 billion euros.
The combination is also expected to yield cost synergies of at least $1.5 billion annually by 2011, phased in equally over three years. The companies estimate meaningful revenue opportunities through expansion of Budweiser on a global scale. Additionally, the transaction is expected to be neutral to normalized earnings per share in 2009 and accretive beginning in 2010. Return on invested capital will exceed weighted average cost of capital during the second year after close, the companies noted.
Shareholders of InBev and Anheuser-Busch will have an opportunity to vote on the proposed combination at special shareholder meetings that will be scheduled at a later date. InBev's controlling shareholder has agreed to vote its shares in favor of the combination.
Goldman Sachs & Co., Citigroup Global Capital Markets Inc. and Moelis & Company are the financial advisors to Anheuser-Busch. InBev has retained Lazard as lead advisor, JPMorgan as co-lead advisor, Deutsche Bank, and BNP Paribas as financial advisors, and Centerview Partners as industry advisor.
According to InBev, it has received fully committed financing with signed credit facilities from a group of leading financial institutions, including Banco Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland. The transaction will be financed with $45 billion in debt, including a $7 billion bridge financing for divestitures of non-core assets from both companies. In addition, InBev has received commitments for up to $9.8 billion in equity bridge financing.
Tough economic conditions and the insatiable thirst to increase market share have encouraged consolidation in the brewing sector. London-based SAB in 2002, acquired North American brewer Miller Brewing from Philip Morris group for $5.6 billion to form SABMiller (SAB.L).
InBev itself is the product of a merger between Belgium's Interbrew and Brazil's Am-Bev. In March 2004, Interbrew, which was then the world's No.3 beer firm acquired Am-Bev, ranked No.5, for $11.5 billion in a share swap deal.
In February 2005, U.S.-based Adolph Coors Co. and Canadian brewer Molson Inc. merged to form Molson Coors Brewing Co. (TAP) and now has about 11% share in the U.S. beer market. Coors acquired Molson for $3.4 billion.
As recently as October 2007, SABMiller and Molson Coors revealed their plans to combine their U.S. operations in order to better compete with Anheuser-Busch and increase their market share in the U.S. The joint venture will operate under the name MillerCoors and will have a market share of about 30%.
Early this year, Scottish & Newcastle, Britain's largest brewer agreed to a buyout by its rivals Heineken and Carlsberg for $15.4 billion.
BUD closed Friday's trading at $66.50, up $5.29, on a volume of 62.22 million shares.
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