The Megabrew: A Critical Assessment of the AB InBevSABMiller Merger

Preben Kierulf Løvland & Henrik Søreide

Student thesis: Master thesis


This thesis presents an in-depth examination of the value creating potential from AB InBev’s acquisition of SABMiller. Pending regulatory approval, the purchase will go down as one of the largest deals in history, creating the world’s first truly global brewer. While the consequence of creating a brewer producing one-third of all beer globally has caused concern, a separate issue is whether the deal is favorable for AB InBev’s shareholders. History has proven that most large deals fail to create shareholder value, suggesting that the acquisition should be approached with caution. The aim of the thesis is to examine the strategic and financial rationale of the deal, to assess whether AB InBev will join the ranks of failed acquirers or succeed. Findings in the analysis reveal that intense M&A activity has created a consolidated brewing industry. Much indicate that consolidation has shifted the importance of industry value drivers, and changed the operating environment to make M&A more favorable. This finding is backed by conclusions drawn by empirical studies, and improved profitability of the most active acquirers in the industry. This suggests that brewers have gradually been able to create shareholder value on a more consistent basis, indicating that the AB InBev-SABMiller merger might be financially viable. Nevertheless, past acquisition performance only provides a generic reference point, necessitating a thorough evaluation of the deal to determine if the $ 104,2 billion acquisition price is justified. To assess whether AB InBev created or destroyed value for shareholders, three distinct valuations were conducted. A profound stand-alone valuation of SABMiller was followed by valuations of control and synergy. Value of control expresses the restructured value of SABMiller run optimally, while the synergy valuation estimates the synergy value the combined firm is expected to achieve. The stand-alone valuation yielded a theoretical market value of $ 69,195 billion, 8,64 % lower than the market capitalization on September 14th 2015. Control and synergy were estimated to create value of $ 4,976 billion and $ 18,060 billion respectively. Finally, losses on sales forced by antitrust authorities were estimated at $ 1,141 billion. By adding the sum of the parts, $ 91,089 billion is the highest acquisition price AB InBev should have paid to acquire SABMiller. Consequently, AB InBev seems to have overpaid to purchase their main rival, destroying $ 13,111 billion of shareholder value. However, the authors acknowledge that lacking inside information may prohibit identification of the true synergy potential. The deal may be financially viable and create value for shareholders if hidden opportunities do exist. Therefore, a discussion regarding the possibility of inaccurate estimations is included in the closing paragraphs.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages177