'Megabrew' Near as A-B InBev, SABMiller Reach Tentative Deal

Combined Company Would Control 30% of World Beer Market

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Anheuser-Busch InBev has reached a tentative deal to take over SABMiller, creating a global brewing giant that would control roughly 30% of the world's beers. An agreement to merge the globe's two largest brewers -- which analysts have nicknamed "Megabrew" -- is not yet final. But the two companies jointly announced early Tuesday morning that they had reached an agreement in principle on an offer for the larger A-B InBev to buy SABMiller in a deal worth roughly $105 billion.

A-B InBev -- whose global brands include Budweiser and Stella Artois -- had faced a deadline of Oct. 14 to reach an agreement under U.K. regulatory rules. The deadline has been extended by two weeks, according to Tuesday's announcement.

While the deal would radically alter the global brewing landscape, the changes in the U.S. might not be so dramatic. That is because in order to soothe anti-trust regulators, A-B InBev would almost certainly have to offload SABMiller's U.S. portfolio, which is controlled via a joint venture of SABMiller and Molson Coors that is known as MillerCoors and whose brands include Miller Lite and Coors Light. The most likely scenario is that Molson Coors would buy SABMiller out of the U.S. joint venture. That outcome could lead to some changes in the states because MillerCoors would answer to one owner, not two as in its current form.

Under the tentative terms announced Tuesday, SABMiller shareholders would get 44 British pounds in cash, with a so-called "partial share alternative" available for approximately 41% of the SABMiller shares. If the deal is finalized at the price announced Tuesday, it would value SABMiller's equity at $105 billion, according to Sanford C. Bernstein. Mark Swartzberg, a beverages analyst for Stifel, said in a note to investors that he expected the deal to close by April of 2016, after regulatory reviews in the U.S. and China that he characterized as "simple."

A-B InBev first approached SABMiller's board about a deal in mid-September, setting off several rounds of brinksmanship in which SABMiller rejected lower-valued offers.

The potential deal was being closely monitored by U.S. brewing leaders who were gathered this week in Las Vegas for the annual meeting of the National Beer Wholesalers Association.

"The global market power that results from this new entity could be like nothing this industry has ever seen. The impact worldwide related to raw materials, market share and overall influence is staggering," NBWA CEO and president Craig Purser said in a presentation Monday before a crowd of roughly 4,000 distributors, suppliers and other industry representatives. He called on antitrust officials to give the deal an "exhaustive review" to ensure that the American market is not "negatively impacted by an increase in global market power."

But while the deal was on everyone's mind, it was mostly business as usual for the U.S.-based leaders of A-B InBev and MillerCoors and the thousands of distributors in attendance. In closed-door meetings, the two brewers shared strategies with their wholesalers, including marketing plans.

In an interview Monday, before the tentative AB-InBev-SABMiller agreement was announced, MillerCoors Chief Marketing Officer David Kroll said speculation about the merger was "not a distraction to our organization at all." Mr. Kroll in recent weeks oversaw major changes to the MillerCoors agency roster, including the recent hire of 72&Sunny as lead agency for Coors Light.

"We are very focused on growing MillerCoors at the moment," Mr. Kroll said. "And regardless of who our ownership structure is, we are going to stay on that growth path."