One Big Brewer

InBev and Anheuser-Busch said they’ve agreed to combine their two companies and form the world’s leading global brewer, Anheuser-Busch InBev.

Boards of directors from both companies unanimously approved the transaction, and InBev has fully committed itself to financing the purchase of all of Anheuser-Busch’s outstanding shares. The agreement means A-B shareholders will receive $70 per share in cash, equating to a $52 billion purchase by InBev.

The Anheuser-Busch and InBev combination will create a global leader in the beer industry and usher in the formation of one of the top five consumer-product companies worldwide.

St. Louis, Mo., will be the headquarters for the new company’s North American region and the global home of the flagship Budweiser brand. With about 40% of the company’s combined revenues being generated in the U.S., the company will draw on the collective expertise of A-B’s dedicated and experienced employees and its culture of quality.

Given the limited geographical overlap between the two businesses and the efficiency of A-B’s brewery footprint in the U.S., all of A-B’s U.S. breweries will remain open, the companies said.

InBev CEO Carlos Brito will be CEO of the combined company, while the new A-B InBev Board of Directors will be comprised of the existing directors of the InBev Board, as well as A-B President and CEO August Busch IV and one other current or former director from the A-B Board.

The combined company’s management team will draw from key members of both InBev’s and Anheuser-Busch’s current leadership. Anheuser-Busch will become a wholly owned subsidiary of InBev upon the completion of the transaction.

Budweiser and Bud Light are the largest selling beers in the world. The combined company will have an unmatched portfolio of imports, local premiums and local core brands, and it’ll be a powerhouse in numerous world markets.

“We are very pleased to announce this historic transaction today, bringing together two great companies that share a rich history of brewing traditions,” InBev CEO Carlos Brito said on Sunday. “We are extremely excited about the opportunities that this combination will create for consumers worldwide, as well as our shareholders, employees, business partners and wholesalers. Together, Anheuser-Busch and InBev will be able to accomplish much more than each can on its own.

“We have been successful business partners for quite some time, and this is the natural next step for us in an increasingly competitive global environment,” Brito said. “This combination will create a stronger, more competitive global company with an unrivaled worldwide brand portfolio and distribution network, with great potential for growth all over the world.”

August Busch IV, Anheuser-Busch president and CEO, echoed about the same.

“Today’s announcement brings new opportunities for Anheuser-Busch and its business, brands and employees,” Busch said. “This agreement provides additional and certain value for Anheuser-Busch shareholders, while enhancing global market access for Budweiser, one of America’s true iconic brands.

“We will leverage our collective strengths to create a truly diversified, global company to sustain long-term growth and profitability,” Busch said. “In the United States and Canada, both InBev and Anheuser-Busch have seen significant benefits from our existing relationship and we look forward to replicating this success in other parts of the world.”

Budweiser, along with Stella Artois and Beck’s, will become the combined company’s leading global brands, leveraging InBev’s expansive international footprint.

InBev said it has a history of successfully building brands around the world, which will complement the unparalleled strength of Anheuser-Busch’s brand-building in the U.S. The two companies already have a successful U.S. distribution partnership for InBev’s European premium import brands including Stella Artois, Beck’s and Bass.

A-B said its world-class sales and distribution system will continue to support the expansion of these brands in the U.S. market, while A-B’s partners fit well with InBev’s global franchise.

A-B has equity investments in two companies with strong brands in two key markets: Mexico’s Grupo Modelo, which owns Corona Extra, the No. 5 brand globally, and China’s Tsingtao, the leading Chinese premium brewer.

Additionally, Budweiser is a strong and growing national brand in China, and the two companies’ footprints in China are complementary, as InBev’s China business in southeastern China will be enhanced by A-B’s strength in northeastern China.

The transaction between the two companies creates significant profitability potential in terms of revenue enhancement and cost savings: The combination will yield cost synergies of at least $1.5 billion annually by 2011 phased in equally over three years, the companies said.

Given the highly complementary footprint of the two businesses, the companies said such synergies will largely be driven by sharing best practices, economies of scale and rationalization of overlapping corporate functions.

InBev has a strong track record for delivering synergies in past transactions and is confident in its ability to achieve these synergies. In addition, there are meaningful revenue opportunities through expansion of Budweiser on a global scale: InBev is the No. 1 brewer in 10 markets where Budweiser has a very limited presence, and has a superior footprint in nine markets where Budweiser is already present.

The transaction is subject to the approval of InBev and Anheuser-Busch shareholders, and other customary regulatory approvals. Shareholders in both companies will have an opportunity to vote on the proposed combination at special shareholder meetings scheduled for a later date.

InBev’s controlling shareholder has agreed to vote its shares of InBev in favor of the combination. The entire deal is expected to be completed by the end of 2008.

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