SABMiller Shares Jump 20% on Merger Talks

A-B InBev has approached SABMiller's board of directors regarding a proposed bid. Mornigstar analystgs think the combination would create a very powerful business

Philip Gorham 17 September, 2015 | 8:11AM

SABMiller (SAB) and Anheuser-Busch today revealed that A-B InBev has approached SABMiller's board of directors regarding a proposed bid. SAB's London-traded stock surged 20% immediately following the news, while A-B InBev rallied 7%.

We think the combination of ABI and SAB would create a very powerful business that, based on cost advantage, would possess one of the widest moats in the consumer staples space. We are reiterating our £36 and $55 fair value estimates for SAB's ordinary shares and ADRs respectively, as well as our €112 and $126 valuation of A-B InBev's local shares and ADRs, until more is known about the likelihood and terms of a deal.

We are unsurprised by the timing of this announcement. Although rumours of the deal have been rife for several quarters, we always saw valuation as the barrier to execution. A-B InBev's management have demonstrated strict financial discipline in previous deals, and we believe they were waiting for a more attractive valuation of SABMiller before making their move. For that reason, we would be surprised if the eventual acquisition price exceeded £ 40 per share, assuming $1billion in annual cost savings.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anheuser-Busch InBev SA/NV57.25 EUR0.32

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Philip Gorham  

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