Beer Merger Could Create One of the Widest Consumer Staples’ Moats

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 GBX 4,000 per share, assuming $1 billion in annual cost savings. This would value SABMiller at around 15 times fiscal 2017 EV/EBITDA, slightly above historical transaction valuation in the beer industry. The deal is likely to be at least 40% financed by stock, in order to allow major shareholders Altria and the Santo Domingo family to retain an economic interest in the brewing industry.

A combined "SAB InBev" entity would generate annual volumes in the order of 780 million hectolitres of beverages, over 4 times the 181 million hectolitres sold by