Incident

Back in September, AB Inbev launched an effort to take over SABMiller PLC. After that, SABMiller’s share price jumped more than 22 per cent after confirming that rival AB InBev intends to make an offer to buy the firm.But SABMiller rejected the takeover proposal of £68.24 billion on Oct 7^th.

Just a few days ago, the two companies reached agreement on acquisition. AB Inbev closed in on the biggest corporate takeover in U.K. history after proposing to pay almost $106 billion for SABMiller Plc. AB Inbev agreed to pay 44 pounds a share in cash for a majority of the stock.

After the deal is done, about 1/3 of the beer consumed by people throughout the world would be produced by AB Inbev.

The motivation of this deal

AB Inbev and SABMiller are the two largest bear-makers in the world. The 2014 global beer sales of AB Inbev is more than 400 hectolitres and SABMiller slightly less than 200 hectolitres.

One of the reason that AB Inbev wants to take SABMiller is that it has already taken other big targets and SABMiller is the largest target it can take now from all those available firms.

Also, there is not much geographical overlap between SABMiller and AB Inbev in terms of global reach since SABMiller earns almost a third of its profits in Africa, where AB InBev’s sales are negligible. Due to this, SABMiller seems to be a better target.

In addition, unlike Heineken and Carlsberg, SABMiller is not owned by family and thus it’s easier to take.

Furthermore, when it comes to the cost of the acquisition, SABMiller has another advantage in that it’s relatively cheap since . Its share price has slumped in the past year, thanks to a weak South African rand and Colombian peso.

Finance

AB Inbev is planning to sell bonds worth as much as $55 billion to finance its takeover of SABMiller Plc, setting a record for debt issuance to fund a corporate acquisition. It has lined up seven banks to arrange as much as $70 billion in financing for the deal. The bonds will be issued in multiple currencies, and with several different maturities. The remaining $10 billion to $15 billion of financing is in the form of term loans.

Challenge

The next challenge for AB InBev, which already owns major brands like Budweiser, Corona and Stella Artois, is to get regulatory approval for its acquisition of SABMiller. The deal is expected to face antitrust scrutiny around the world and could take as long as a year to close, according to some antitrust experts.