Coverage: Anheuser-Busch InBev and SABMiller reach agreement

After publicly squawking at one another just days ago, Anheuser-Busch InBev and SABMiller have finally agreed on terms for a merger. The deal will cost Anheuser-Busch a whopping $104 billion.

And despite the two companies finally agreeing, the deal, which would create a dominating force in the beer industry, still has to pass regulator approval.

Saabira Chaudhuri, Shayndi Raice and Tripp Mickle of The Wall Street Journal had details on the impending merger:

Anheuser-Busch InBev NV finally won over SABMiller PLC’s board with a $104.2 billion takeover bid to create a brewer that would dominate much of the world’s beer market, but only after weeks of behind-the-scenes talks that erupted into a testy public standoff.

SABMiller, the maker of Miller Lite and Pilsner Urquell, said Tuesday its board would recommend its shareholders approve AB InBev’s latest proposal of £44 a share—a 50% premium to SABMiller’s Sept. 14 share price, the day before media speculation about a potential deal emerged. Belgium-based AB InBev also agreed to pay a large $3 billion breakup fee if the deal failed, and gave clearance for the U.K. brewer to continue paying normal dividends of about £1.3 billion to shareholders before the deal closes.

The preliminary agreement came a day after Dell Inc. said it would buy EMC Corp. for $67 billion, putting 2015 on pace for a record $4.4 trillion in mergers, surpassing 2007.

Informal talks between the world’s two largest beer companies turned sour last week when AB InBev made public a £42.15-a-share proposal it thought had the backing of SABMiller’s two biggest shareholders, which together control 41% of the company. It was quickly rejected by the board.

SABMiller Chairman Jan du Plessis played a key role in keeping his board together to seek a better price, according to people familiar with the matter. Mr. du Plessis, who was chairman of miner Rio Tinto PLC last year when it effectively fended off a takeover approach from Glencore PLC, had been tapped as SABMiller chairman in August.

Chad Bray and Michael J. de la Merced of The New York Times explained what happened behind the scenes of the deal:

Behind the scenes, shareholders of the two companies had been holding their own sets of talks. Over the weekend, representatives of 3G Capital, the Brazilian investment firm that helped create Anheuser, held discussions with the Santo Domingo family, which owns 14 percent of SABMiller, according to people briefed on the matter. The Colombian family is also an investor in 3G.

It was 3G that had negotiated with SABMiller’s other big shareholder, the American tobacco giant Altria, which holds a 27 percent stake, and secured its support for a takeover. Having the Brazilians handle the negotiations with a fellow South American beer dynasty made sense, given the Santo Domingos’ close ties to 3G.

By Sunday night, Alejandro Santo Domingo, the 38-year-old scion of his clan and one of the family’s two representatives on the SABMiller board, had agreed to a price of £43.50, these people said.

Having won over a shareholder critical for any deal, Carlos Brito, the Anheuser-Busch InBev chief executive, and Olivier Goudet, the Anheuser-Busch chairman, flew to London from New York to meet with Jan du Plessis, the SABMiller chairman, Monday morning, people briefed on the discussions said.

In the unassuming brick offices of an SABMiller adviser — the boutique investment bank Robey Warshaw — the men held a series of face-to-face meetings to try to negotiate a deal. Mr. Goudet had not joined previous in-person meetings between Anheuser-Busch and SABMiller, these people said.

SABMiller was not only seeking a high premium for its shareholders, but it wanted assurances that a deal could be completed, seeking a commitment from Anheuser-Busch InBev that it would undertake its “best efforts” to obtain the necessary regulatory approvals, these people said. By mid-evening, the talks concluded with a handshake agreement in place.

Roberto Ferdman of The Washington Post explained how Anheuser-Busch would have to make concessions if this mega merger is to pass regulator approval:

But some analysts say there is reason to believe this deal has more to do with synergies across the world than it does with exerting power over any single market.

“I keep hearing people talk about how this is going to affect the U.S. market, but there will be virtually no impact at all,” said Mike Mazzoni, a senior partner at Seema International and longtime beer industry veteran. “Things will literally be just as they were before.”

The expectation, according to Mazzoni and others in the industry, is that Anheuser-Busch InBev will have to sell its ownership stakes in companies such as Miller­Coors to gain the approval of antitrust officials. As a result, familiar brands such as Miller Lite and Coors Light could end up in the hands of a third party.

“I’m told Molson Coors, which operates globally . . . and sells Molson and Coors, is the likeliest buyer,” Mazzoni said. (MillerCoors is a joint venture between MolsonCoors and SABMiller.)