Anheuser Busch Inbev SA (NYSE: BUD) stock was up as much as 7.8% today (Wednesday) to $116.43 after proposing an acquisition of SABMiller Plc.
BUD stock is now in the black for the year, with a year-to-date gain of 1.2%.
SABMiller Plc. (OTCMKTS ADR: SBMRY) shares surged roughly 21% to $56.69 following the news.
According to The Wall Street Journal, the deal would be worth more than SABMiller's $75 billion market cap.
The combined company would own nine of the world's top 20 beers by volume. Annual sales would approach $55 billion. Under the Anheuser Busch InBev umbrella are the iconic brands Budweiser, Becks, Michelob, and Rolling Rock. London-based SABMiller makes Pilsner Urquell and Peroni, among others.
If a transaction does occur, it will be the largest merger in brewing history. According to Dealogic, it may also rank among the top 10 takeovers of all time, with a combined value around $230 billion.
A deal would allow BUD to boost its footprint in fast-growing markets like South Africa, where SAB Miller dominates in 15 countries and has a commanding presence in 21 others. It would also bolster BUD's grip in South America and Mexico, which are by far its most profitable markets.
While BUD stock is up on today's news, the deal still faces some major obstacles...
BUD Stock Climbs, But the Deal Faces Hurdles
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
While SABMiller officials have been informed of the deal, they announced today that they have not yet received a formal proposal.
According to UK takeover rules, BUD has until by 5 p.m. on Oct. 14 to make an official offer.
Any transaction would require full support from Altria Group Inc. (NYSE: MO). Altria holds a 27% stake in SABMiller, making the tobacco giant SAB's biggest shareholder. BUD will also need to get the backing of the Alejandro Santo Domingo family, which owns a 14% stake in SAB Miller.
Further, there will also be some regulatory issues for BUD...
In order to appease government officials, SABMiller would likely need to end its joint venture in the United States with Molson Coors Brewing Co. (NYSE: TAP), industry analysts say. Plus, a combined BUD/SABMiller may also have to shed SABMiller's 49% stake in CR Snow, its brewery partner in China.
But despite the obstacles, the proposed merger could be a huge win for Anheuser Busch and BUD stock...
What an SABMiller Deal Could Mean for BUD Stock
BUD, the world's biggest brewer by volume, has seen its sales decline in recent years as consumers shift to craft beers, wine, and spirits.
The Brewers Association (BA) reported that craft brewers reached double-digit (11%) volume share of the marketplace in 2014 for the first time. Craft brewers produced 22.2 million barrels last year, an 18% increase in volume and 22% increase in retail dollar value. Retail dollar value in 2014 came in at $19.6 billion, representing a 19.3% market share, the BA reported on March 16.
U.S. beer sales, meanwhile, have declined in recent years. According to consumer research firm Mintel, 22% of Americans say they are drinking less domestic beer in favor of wine. Another 18% are drinking more liquor instead of beer.
Stay informed on what's going on in the markets by following us on Twitter @moneymorning.
Protect Yourself from a Total Market Collapse: According to CIA Asymmetric Threat Advisor Jim Rickards, there are five "flashpoints" that signal the death of the U.S. dollar and a complete economic collapse in the United States. Here's how you can protect yourself, and your money, before it's too late...
Related Articles:
- The Wall Street Journal: SAB Miller Gets Takeover Approach from Anheuser Busch InBev
- Bloomberg: AB InBev Approached SAB Miller in Record Industry Combination
- CNBC: AB InBev Courting SAB Miller to Form $270b Drinks Giant