World's largest brewer InBev proposes to create $100 billion company with $46 billion takeover of Anheuser-Busch

24 May 2008

The spirit world may be in for a major churning as two of the biggest names come close to creating the biggest conglomerate of their kind, a $100 billion behemoth. The names involved are currently No.1 and No.4 in the brewing business – InBev and  Anheuser-Busch with annual revenues of $19.7 billion and $16.7 billion respectively. SABMiller and Heineken are No.2 and No.3, with revenues of $18.6 billion and $18 billion respectively. However, these positions are pretty dynamic considering the fluctuating currency exchange rates.

Now, No.1 is making a $46 billion bid for No.4 and reports indicate that it has already stitched up financing for the same, and some more. However, No.4 may not be very welcoming of being acquired, although the offer constitutes a $65 per share deal, a considerable premium over the latest market price.

The deal, if it materializes, will not only shake up the world of spirits but that of high finance in general. A combined entity would brew one-fourth of the world's beer and have a stronger hold over the rich American market; but more importantly, a coming together of the two names would also raise hopes across capital markets that the worst of the credit crisis may be over, a crisis which had already sounded the death knell of many possible buyouts which had collapsed as funding dried up. Thus, in a sense, a deal would mark the most important transaction since the bail-out of Bear Stearns by JPMorgan this year.

JPMorgan also features prominently in these discussions as well. If latest reports are to be believed, the acquiring entity,  InBev, has already arranged for funds for this massive deal, and the American bank is one of the two lenders. Santander of Spain is the other. However, InBev, JPMorgan and Sullivan Cromwell, the American law firm believed to be advising the Belgian brewer, all declined to comment. Neither did Lazard, the investment bank which is rumoured to be handling negotiations for InBev, say anything.

The share market, as expected, has reacted vigorously to this news. The Anheuser-Busch stock ended at $56.61 yesterday, a whopping 7.7 per cent or $4.03 over Thursday's close. However, InBev's shareholders were less enthusiastic and the price fell €1.44 to €48.88 in Friday trading.

InBev makes Beck's, Brahma, Stella Artois and Skol beers, and was itself created in 2004 when the Belgian company Interbrew and the Brazilian company AmBev merged, creating the world's largest brewer. . Reports of its interest in Anheuser-Busch have circulated for months. Anheuser-Busch makes Budweiser, Bud Light and other beers. The company has an estimated 51 per cent US domestic market share, where it is the undisputed No.1. InBev would like to leverage  Anheuser-Busch's prominence in the developed world to further its dominance in the developing world.