In a potential deal that would bring together the world’s two largest beer makers Anheuser-Busch InBev (BUD, Financial) has approached the board of directors of SABMiller PLC (SBMRY, Financial) to discuss a merger of the two companies. It is unclear as to when discussions first began; however, on Sept. 16, both companies publicly acknowledged the possible deal through website and media announcements.
On Sept.16 SABMiller reported in a release that it has been approached by Anheuser-Busch InBev about an acquisition deal and noted that the firm would be submitting a proposal to the board that would include more details, specifically the terms and valuation of the deal. In a response release from Anheuser-Busch InBev also on Sept. 16, the company acknowledged its intention to propose an offer of acquisition.
In the open market, both companies have been trading favorably year-to-date. Anheuser-Busch InBev has gained 3.02% year-to-date with a Thursday closing price of $115.43. Year-to-date, SABMiller’s stock is up 10.5% with a Thursday closing price of $56.45. In trading on Sept. 16, SABMiller shares were up 20.8% from their closing price of $46.73 on Sept. 15.
In 2014, Anheuser-Busch InBev reported full year sales of $47.1 billion, an increase of 3.5%. In the company’s most recent second quarter earnings report, it had sales of $11.1 billion. In the second quarter, sales growth was down slightly, decreasing 9% from the comparable quarter a year ago.
SABMiller ended its most recent fiscal year on March 31. The company reported revenue of $22.1 billion with sales almost flat from the previous year at $22.3 billion.
The combination of the two businesses would create a number of synergies, likely adding immediate earnings accretion for Anheuser-Busch as there are few barriers to integrating the two companies.
The merger would be of great benefit for Anheuser-Busch InBev as it would allow the company to gain market share in geographical segments where it has struggled in the past. The merger would also help to significantly improve profitability due to the cost savings to be realized from the combined brewing and distribution businesses.
Anheuser-Busch InBev is widely held by investment managers, with the greatest portion of the firm’s shares owned by BRC SARL at 52.16%. Additionally, a number of managers have added shares of Anheuser-Busch InBev to their portfolios recently. Second quarter guru investment manager buys included Jeremy Grantham (Trades, Portfolio), Tom Russo (Trades, Portfolio), Ken Fisher (Trades, Portfolio), John Burbank (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).
No proposal value deal terms have been provided yet by either firm. However, within the guidelines of the international regulations governing the merger, Anheuser-Busch InBev has until Oct.14 to present a proposal for the acquisition. The first step will be an important and difficult one for Anheuser-Busch as it will require approval from well-known shareholder owners, specifically Altria (MO, Financial).
 If the deal does proceed beyond the board approval, it will likely also be a long and extensive process from there, as an increased number of approvals are required within the international jurisdictions of which the two companies operate.
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