AB InBev, SABMiller yet to formalise beer deal

The beer giants have agreed in principle to a tie-up worth the equivalent of about R1,4 trillion. 

SABMiller indicated its board would be prepared unanimously to recommend the all-cash offer to shareholders.  

Meanwhile in South Africa, the Food and Allied Workers Union feels workers stand to lose the most from the deal. 

It will oppose the transaction.

Rapid moving sector 

The outline deal meanwhile comes at a time of growing pressure for rapid consolidation in the brewing industry, which is faced with the increased popularity of so-called craft beers that are brewed by smaller independent firms.

Swallowing SABMiller, born in the 19th century Johannesburg goldrush, will broaden AB InBev's reach in the world's fastest-growing beer markets.

Together, the two brewers will be responsible for one in three beers sold globally, according to market research group Euromonitor International, which has warned however that such a merger would attract close scrutiny by regulators.

News of the deal sent shares in SABMiller, the world's second-largest brewer, surging on the announcement, with markets expecting a deal to go through despite regulatory hurdles.

In Tuesday trade, SABMiller stock soared 9.02 percent to finish at £39.48 in London and AB InBev gained 1.68 percent to 100 euros in Brussels.

Nevertheless, the deal will be closely examined by the competition authorities, said Connor Campbell, analyst at Spreadex trading group.

Drinks are on SAB? 

"Any pact that would cause a single company to produce a third of the world’s beer is going to come under intense, potentially deal-ending, scrutiny from regulators," he said.

"However, for now the drinks certainly are on SAB, which surged over 9.0 percent in light of the news."

AB InBev, which has until October 28 to make the bid formal, undertook to pay a "break fee" of $3 billion if the deal falls through because of regulatory objections or a rejection by its own shareholders.

SABMiller indicated that its board would be prepared unanimously to recommend the all-cash offer to its shareholders.

The latest bid, an improvement on Monday's bid of £43.50 a share, represents a premium of about 50 percent to SABMiller's closing price on September 14, the final business day prior to renewed speculation of an approach by AB InBev. 

SABMiller, which also makes Grolsch and Pilsner Urquell, had rejected the AB InBev's previous bids as being too low.

AB InBev recently reported a sharp fall in second quarter profits owing to weak economic conditions in several markets.

In order to firm up its business, SABMiller earlier this year bought London-based craft beer company Meantime for an undisclosed sum, as big players in a saturated beer market eye opportunities in the fast-growing segment.

Elsewhere, Dutch beer giant Heineken bought half of US-based beer maker Lagunitas, hoping to cash in on the global rocketing popularity of craft beers.

(File photo: Getty Images)