SABMiller shares soar as markets await brewing mega-deal

Shares in SABMiller, the beer giant behind Peroni and Grolsch, soared to a record high on Monday, as shareholders worked up a thirst at the prospect of a long-awaited takeover battle between the world’s biggest brewers.

Investors piled into SABMiller as analysts said the group, which has been transformed from a South African conglomerate into the world’s second largest beer-maker, is now effectively “in play” and vulnerable to being swallowed up by its larger rival, Anheuser-Busch InBev.

Shares spiked after a report emerged from the US that AB InBev, the Belgian-American behemoth behind brands such as Budweiser and Stella Artois, is in discussions with banks to finance a potential £75bn tilt at SABMiller, which started life during the Johannesburg goldrush in 1886, but has been listed on the London stock exchange since 1999.

The report, in The Wall Street Journal, was swiftly contradicted by another American news outlet but expectations remain high that a long-anticipated mega-deal in the global brewing industry may be just around the corner.

Speculation that AB InBev, led by the voracious Brazilian deal-maker Carlos Brito, would make a play for SABMiller has been rife for years. But a surprise approach by SABMiller for Dutch brewer Heineken, revealed over the weekend, was viewed as an attempt by the Peroni-maker to become the hunter, before it turns into the hunted.

SABMiller made a tentative approach to Heineken in the last fortnight, which was rebuffed by the brewer’s majority shareholder and founding family. The Heineken family, led by Charlene de Carvalho-Heineken, has long indicated that it would like the company to remain independent.

The move for Heineken took the markets by surprise; rumours had been doing the rounds for weeks that SABMiller’s prime merger target was Diageo, the drinks company behind Johnnie Walker Scotch whisky and Smirnoff vodka, which also owns Guinness.

Analysts have long been penning essays on the potential virtues of Diageo selling off Guinness to concentrate on spirits. It had been thought SABMiller could use a merger with Diageo as a “poison pill” to prevent being swallowed up by AB InBev, which was created in 2008 when InBev of Belgium mounted a $52bn hostile takeover for the American heavyweight Anheuser Busch.

While the Diageo poison pill theory still hasn’t been disproved - shares in the FTSE 100 drinks giant gained more than 2pc to £18.50 - the group’s chief executive, Ivan Menezes, was careful to stress last week at the opening of a new Guinness brewery in Ireland that beer remains “core” to his growth strategy.

SABMiller still has the choice of raising its offer for Heineken, but following a robust statement from the latter on Sunday night, in which it said it had consulted its majority shareholder and considered the offer “non-actionable”, analysts said that a deal between the two was unlikely.

“We believe Heineken sees itself as a consolidator, not an acquisition target itself,” said Santander analyst, Anthony Bucalo, in a note.

SABMiller was keeping quiet on Monday, although those familiar with the company downplayed the “poison pill” theory, pointing out that the brewer, which is heavily exposed to the emerging markets and generates a third of its profit in Latin-America, has a good track record of successful acquisitions and rarely makes knee-jerk reactions.

With reports that AB InBev is preparing to swoop, though, Wyn Ellis, analyst at Numis Securities, suggested the SABMiller has a couple of choices: it could go after Carlsberg, the Danish brewer which occupies the number four spot in the rankings of global brewers, or it could consider France’s Castel.

SABMiller already has a 20pc stake in Castel’s African business and it has long been believed that it would seek to buy the French company if its controlling family ever decided to relinquish control.

However, Mr Ellis said an approach for Carlsberg is also unlikely to be successful while a deal with Castel may not provide sufficient scale to hold off the ambitious AB InBev, which has splashed out almost £100bn on acquisitions in the last ten years.

A mega-deal between AB InBev and SABMiller would throw up “obvious competition concerns,” Mr Ellis said, but the potential for synergies “would also be very substantial".Mr Brito, whose cut throat approach to cost-cutting has earned him the nickname “La Maquina” - the machine - would have plenty to go for.

“We believe AB InBev management would be excited by the prospect of achieving dominant global leadership via a deal with SABMiller,” said Mr Ellis.

Both SABMiller and AB InBev, which would have a combined market capitalisation of £173bn, have a strong presence in South America. However SABMiller’s sizeable business in Africa, the third biggest contributor to its profits last year, would be the main attraction for its rival. Around 65m more Africans will reach the legal drinking age by 2023 and all of the major drinks companies are viewing the continent as the next major battleground.

Both SABMiller and AB InBev would not comment on Monday but that didn’t stop shareholders from drinking up the speculation and shares in SABMiller closed up 9.8pc at £37.40.