The timing of my last post in June about the odds of Anheuser Busch InBev (BUD) making a big splash in the M&A market was pretty good it turns out. BUD has made a formal approach to SABMiller and I would peg the odds of a deal at no less than 75%, conservatively. While BUD’s slow pace was baffling to me, in hindsight it appears maybe they were waiting for a global stock market correction to help them offer a big premium. Opening with an offer of $65 per share when SAB stock was at $60 would look a bit insulting. With the stock at $47 before today’s announcement, it would get the two sides talking for sure.
Even after major anti-trust concessions such as the sale of SAB’s 50% stake in the Miller Coors joint venture, BUD investors would be material winners if the two beer giants combine. The InBev playbook has always been about lean operational excellence and BUD’s EBITDA margins are well ahead of SAB’s (the gap is more than 10 percentage points, even after subtracting the U.S. operations). After a few years of deal integration the SAB business would likely have similar margins to legacy BUD, which would mean EBITDA accretion of a couple billion dollars. Apply a 13 multiple to that and you get about 15% accretion for BUD shareholders. My fair value estimate for BUD pre-deal is in the high 130’s, which would likely get pushed over $150 after a successful SAB integration.
We could be looking at 2018-2019 as far as a timeline is concerned for such an integration, but given the shaky global economy right now, the risk-reward for BUD investors was very solid before today’s announcement and the numbers would only improve if a deal gets done. As a result, I am not a seller of BUD here and would not be opposed to opportunistic buying depending on how negotiations go. I’ll post an update digging into the deal specifics if one is agreed to over the next couple of months.
Full Disclosure: Long shares of BUD at the time of writing, but positions may change at any time