Anheuser-Busch InBev’s Takeover of SABMiller
The global beer industry, which has been growing steadily for almost a century now, is filled with variety. There are many types of beer that vary in flavor, production technique, ingredients, color, alcohol levels, and geographic origin. Also, the many brands vary greatly as well. Some brands dominate global beer markets, while other brands are very local - and everything in between. Anheuser-Busch InBev and SABMiller were two of the largest global dominating beermaker companies in existence. Together, they produced around 30% of all beer sold world-wide. The idea of Anheuser-Busch InBev and SABMiller merging was simply astonishing. When a proposal came out from Anheuser-Busch InBev to purchase SABMiller in a corporate takeover, the investment world paid close attention. This was to become the third largest corporate merger in the world.
People who drink beer usually identify with specific brands versus the large corporation that owns those brands. Therefore, when people learn that the same company owns a locally preferred brand along with another famous brand from the same region or a different region, it is hard to grasp, since the various brands are so unique in quality, character, and style. As an example, when Ford owned Jaguar, it was hard to imagine such an elegant and sophisticated car being produced by Ford. Fortunately, Jaguars were still produced in Jaguar factories by those original Jaguar employees, generally speaking. It is the same with beermakers. Different brands are brewed in different breweries located all around the world. One advantage to a corporate ownership structure is brand longevity. Where small, locally owned breweries may not be able to weather an economic storm, small breweries owned by large corporations can endure. Typically, when a brand is owned by a large corporation, that brand will only disappear if the public loses interest regardless of the financial state of the economy.
History has been made recently after Anheuser-Busch InBev merged with SABMiller in a corporate takeover that created the largest beer company in the world. Also, this corporate takeover became the third largest corporate merger in all of world history. “If successful, the combined global beer company will operate on every continent bar Antarctica” (Khan, 2016). That means the combined corporation would own local beer brands, national beer brands, and global beer brands alike, from all over the world. The list of brands is staggering and surprising all at the same time. This corporate takeover has been orchestrated meticulously in many countries and by many investors located all around the world.
On September 28, 2016, SABMiller investors approved the $103 Billion takeover by Anheuser-Busch InBev with a 95% vote for approval. This approval had surpassed the required minimum of 75% vote for approval, which clinched the takeover and combined the two largest beermakers in the world. This takeover occurred almost one year after the corporate takeover was proposed, which accounts for the many complexities and hurdles that needed to be overcome. Then, on October 10, 2016, after more negotiations and after clearing more regulatory hurdles, the deal closed, allowing Anheuser-Busch InBev to control the sale of almost one out of every three beers sold worldwide.
Corporations can take many forms and structures that range from a single company to a multi-corporate conglomerate. Conglomerates are combinations of two or more corporations that are involved in completely different industries, yet all belong to one central corporation. An example of a conglomerate is General Electric, which produces trains, jet engines, house appliances, light bulbs, and many other products, globally. Anhueser-Busch InBev was originally an American brewing company founded in St. Luis, Missouri, and it has been a family-owned company until 2008 when it was purchased by the Belgian-Brazilian brewing company InBev. Anhueser-Busch InBev is like a conglomerate, but it only produces beer.
Though this acquisition may appear to take the form of a conglomerate, since some of the primary investors are heavily vested in other industries like tobacco, for example, the takeover simply combines major brands of beer such as Budweiser, Corona, and Castle Lager, making the new company the largest beermaker in the world. Therefore, Anheuser-Busch InBev’s takeover of SABMiller is a strategic merger, and it is not a conglomerate. “The deal for SABMiller is intended to let Anheuser-Busch B InBev strengthen its grip on the Latin American market and expand its business in Africa” (Massoudi, 2016). This reveals a clear strategic intention for gaining market share in Latin American and growing business in African markets.
Now that markets in Latin America are opening up, and the market in Africa is growing very quickly, Anheuser-Busch InBev has a much greater opportunity to take advantage of these promising markets during these very early stages of the beer industry market growth. “Castel in Africa, an alliance, which according to analysts at Berenberg, ‘has been instrumental to SABMiller’s growth story in the continent’” (Daneshku, et al, 2015). By combining Anheuser-Busch InBev and SABMiller in a corporate takeover, the new corporation will now be able to meet the growing demand in Latin America and Africa while at the same time, cementing their name brand in these new and growing regions. “Those markets have not been disrupted by a shift in consumer taste towards craft beers and they continue to see strong growth in consumption volumes” (Massoudi, 2016). This increasing name-brand loyalty will ultimately benefit the company by insuring future sales volumes for years and even decades to come.
Just over two months before SABMiller’s 95% approval vote to allow the takeover, Elliot Management raised concerns about the proposed takeover structure after reviewing some economic changes. A 13 percent value gap had formed between the two options that were electable by shareholders of SABMiller. There were two primary factors that caused this 13 percent gap. The first factor was that the value of sterling had dropped sharply after a UK referendum materialized to exit from the EU (Brexit). The second factor was the fact that the sterling value drop caused an 8.2 percent increase in the value of the Euro over the value of the GBP (£). When a currency changes in value, a purchase in that country of origin for that currency will also change in value, accordingly.
The change in the value of the Euro affected all stocks that traded with Euros. It also affected its trade value against other currencies like the GBP. Therefore, since Anheuser-Busch InBev stock was traded in Euros on the Brussels Stock Exchange (BSE) and SABMiller stock was traded in GBP’s on the London Stock Exchange (LSE), the value of the two available options for SABMiller shareholders had separated by a gap of 13 percent. “Anheuser-Busch InBev’s stock is listed in Brussels and trades in euros. The common currency has gained 8.2 per cent against sterling since the UK elected to leave the EU on June 23” (Massoudi, 2016). Problems like this can occur when global circumstances change without notice and they must be accounted for prior to proceeding with any transaction. All parties involved must receive their fair value, so adjustments must be made to compensate for global economic changes.
Concerns over the 13 percent value gap had caused Hedge funds TCI and Davidson Kempner to push for a higher cash offering for the SABMiller takeover by Anheuser-Busch InBev. It was argued that this situation would benefit Altria and BevCo, which were SABMiller’s major shareholders, owning about 40 percent of SABMiller’s stock. Fortunately, SABMiller’s chairman Jan du Plessis responded to this problem by saying that “SABMiller was ‘still waiting for the precondition in relation to China’ and would ‘look at the transaction as a whole’ once those approvals were received” (Massoudi, 2016). Factors like currency fluctuation must always be considered when doing business globally. Also, it is apparent that other factors like related dealings in other countries must be carefully considered as well.
Stock markets in other countries are typically based on each country’s local currency. These currencies can fluctuate the same way stocks typically fluctuate in their value. It is possible to purchase a stock in another country that drops in value while at the same time, the local currency rises in value, which may cause a net zero change in value based on the USD ($). International investors strategically use these fluctuations to increase their profits when they accurately predict these fluctuations. The complexity of a global corporation that is based in many different countries around the world is usually beyond comprehension for many people due to these complexities.
Another factor to consider is corporate regulation mandated independently in each individual country. When global corporations merge with other global corporations, there are always many independent regulatory factors to consider prior to proceeding. Every country where these corporations reside will have its own set of rules and regulations to contend with. Each country must weigh in on the deal and decide in its own way how the merger will proceed after weighing the interests of all parties using their own unique scales (regulations). There will likely be interdependence between each nation’s decisions since the outcome of the merger from one country will affect the proposals in another country. Timing, transparency, and clarity are paramount in global transactions. Most importantly, a complete understanding of all regulations and processes from each country involved must be in place.
Many regulations are in place in one form or another to protect consumers’ interests. For example, antitrust laws, which govern the conduct and organization of corporations to promote fair competition, exist to benefit and protect consumers. “It is also in the US that a potential merger faces the biggest competition problems, though antitrust regulators the world over would scrutinize a deal” (Daneshku, et al, 2015). It is very important to keep the playing field fair and open for business. These corporate regulations pave the way for overall fairness to occur. But there must always be a balance between regulation and the promotion of free-market business activities. When regulations are fair, but limited, businesses can flourish while consumers can be protected against greed and dishonest practices, which can permeate when allowed.
The regulations in each country are numerous and complex. These regulations will vary from country to country and they may require divestitures, which means liquidation or the sale of all or specific components of a business or a corporation. “Given the size of the two companies, Anheuser-Busch InBev would have to agree to divestitures in order to obtain regulatory approval for a deal in multiple countries, including the US and China” (Daneshku, et al, 2015).
Antitrust regulators in the US played a large role in shaping the combined corporation of Anheuser-Busch InBev and SABMiller. “In the US, a combined group would have 78 percent of the market, making divestments inevitable” (Daneshku, et al, 2015). An example of a necessary divestment was stated by Trevor Stirling, an analyst at Bernstien. He stated: “The US Department of Justice would almost certainly insist on the disposal of SABMiller’s stake in MillerCoors in the USA” (Fontanella-Khan, et al, 2015). Divestitures in each country require negotiations and regulation compliance, making the process cumbersome and time consuming. Although, by paying meticulous attention to detail throughout the process, and by carefully negotiating each aspect of the deal, rewards may likely be achieved for all parties involved in the deal.
Regulators in China were concerned about their local brewing company CR Snow, among other things. Although CR Snow may not be well known around the world, it happens to be the largest beer brand in the world, by volume. This is due to the fact that it is the most popular beer in China, which has the largest population of any country in the world – around 1.4 Billion people. It was understood early-on that “the Chinese Ministry of Commerce, which regulates M&A (Mergers and Acquisitions) transactions, would require SABMiller to sell any of its stake in CR Snow, China’s best-selling beer with 21 per cent of the market” (Daneshku, et al, 2015). Furthermore, “ABI might also have to dispose of SABMiller’s 49 per cent stake in CR Snow in China” (Fontanella-Khan, et al, 2015). China generally maintains a protectionist mentality regarding Chinese companies, making corporate mergers with Chinese companies fairly difficult to deal with.
China has the highest level of protectionism when compared to all other developed or developing nations. Large corporations that would seem to be safe, like Apple and Cisco, have experienced this problem in the worst possible way. They were dropped from approved state purchase lists for apparent “dubious sins” as claimed by China’s various regulatory authorities. “The most egregious example occurred last July, when enforcers with the Shanghai Food and Drug Administration (SFDA) raided a processing plant of Husi Food, a subsidiary of U.S.-based OSI Group. Under the accusation that Husi was selling expired meat to American restaurants operating in China, the SFDA arrested six employees and shut down the plant. They remain incarcerated in a Chinese prison to this day” (Brannon, 2015). It is very impressive that Anheuser-Busch InBev’s and SABMiller were able to undertake such a giant merger, which included dealings in China, without experiencing these types of problems.
Another important region where this gigantic merger took place was in Europe. Fortunately, European competition was easier to deal with regarding the Anheuser-Busch InBev’s takeover of SABMiller. “There are also overlaps in parts of Europe, including Italy and Poland, but in Brussels, lawyers were optimistic that European competition concerns could be easily fixed” (Daneshku, et al, 2015). After reviewing the impact on the entire beer marketplace in Europe, it appeared that there were very few obstacles that would possibly hinder the Anheuser-Busch InBev’s takeover of SABMiller. The only real concern was the possible need to dispose of a few premium bottled beers, which was not a large factor considering the number of brands represented by the newly combined corporation. “Dropping one or two small lager brands in Europe would be unlikely to scupper the deal — especially when SABMiller’s growth in Asia and Africa is one of the main attractions for Anheuser-Busch InBev” (Daneshku, et al, 2015). Europe is a strong marketplace for beer consumption, so this limited regulation obstacle was a welcome piece of news for Anheuser-Busch InBev.
There was a clear motivation to accelerate the takeover deal in order to save substantial amounts of money in overall taxes and fees. The tax bill combined with fees that were faced by this merger were estimated to be around $2 Billion. These taxes and fees were considered to be the largest ever paid to bankers, legal advisers and public relations companies in world history for one single deal (Massoudi, 2016). “The two sides are rushing to complete the arrangement that Anheuser-Busch InBev believes will allow it to cut costs of at least $1.4bn annually within four full years of the transaction closing” (Massoudi, 2016). There were large staff cuts needed - around 5,500 people - in order to hit the cost-saving targets that were in place. This equated to about three percent of the combined workforce of Anheuser-Busch InBev. These tax liability savings were used to help offset the value gap that was caused by sterling dropping in price, which was caused by the UK Brexit vote that took place earlier.
Later, there was an intentional delay of the takeover put in place by SABMiller after learning that Anheuser-Busch InBev had raised its offer to purchase a smaller competitor of SABMiller. They wanted to wait and see how all of the other offers panned out for the larger investors like Altria. “SABMiller has told its employees to temporarily pause work on integrating the two companies, after Anheuser-Busch InBev raised its offer for its smaller rival by £1 a share, valuing the deal at £79bn” (Thomas, 2016). Delays like this can be very important in order to insure expectations, but delays can also be detrimental, depending on the circumstances.
History was made recently after Anheuser-Busch InBev merged with SABMiller in a corporate takeover that created the largest beer company in the world. Investors approved the $103 Billion takeover by Anheuser-Busch InBev with a 95% vote for approval, which surpassed the required minimum of 75% vote for approval, clinching the takeover and combining the two largest beermakers in the world. This allowed Anheuser-Busch InBev to control the sale of almost one out of every three beers sold worldwide. Anheuser-Busch InBev’s takeover of SABMiller was a strategic merger, and it did not form a conglomerate since it only produces varieties of beer. Being a global company, the merger was affected by currency variation. Anheuser-Busch InBev’s stock was traded in Euros on the Brussels Stock Exchange (BSE) and SABMiller stock was traded in GBP’s on the London Stock Exchange (LSE), causing the value of the two available options for SABMiller shareholders had separated by a gap of 13 percent. This was addressed by adjusting offers. Corporate regulations pave the way for overall fairness to occur. But there must always be a balance between regulation and the promotion of free-market business activities. When regulations are fair, but limited, businesses can flourish while consumers can be protected against greed and dishonest practices, which can permeate when allowed.
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