InBev and Anheuser-Busch have announced an agreement to combine the two companies, forming the world's leading global brewer. (See: InBev and Anheuser-Busch cease fire; in friendly talks)

Anheuser-Busch shareholders will receive $70 per share in cash, for an aggregate equity value of $52 billion, in an industry-transforming transaction.

In a $52-billion all-cash deal, Belgian brewer InBev has finally enterd into an agreement with Anheuser-Busch to merge their businesses, paving the way for creation of the world's largest brewer, Anheuser-Busch InBev, and one of the world's five-largest consumer compsanies.

The two companies today said they had signed an agreement to combine the two companies, under a deal that would fettch Anheuser-Busch shareholders  $5 more than InBev had proposed to offer in its consent solicitation to the sharholders.

They will now receive $70 per share in cash,  for an aggregate equity value of $52 billion (Rs222,404 crore), in what the companies call "an industry-transforming transaction" that would make Anheuser-Busch a wholly owned subsidiary of InBev.

The companies said that the boards of directors of both companies' have unanimously approved the transaction and that InBev already had "fully committed financing" for the purchase of all of Anheuser-Busch's outstanding shares.

InBev has received signed credit facilities from a group of leading financial institutions, including Banco Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland.

The transaction will be financed with $45 billion in debt, including a $7 billion bridge financing for divestitures of non-core assets from both companies. In addition, InBev has received commitments for up to $9.8 billion in equity bridge financing which will allow the company flexibility in deciding upon the timing and form of equity financing for a period of up to six months after closing.

The combined company is expected to retain a strong investment-grade credit profile, and rapid deleveraging of the balance sheet is expected through strong free cash flow generation. The tranasaction is subject to shareholder and regulatory approvals.

The combination of Anheuser-Busch and InBev will create the global leader and on a pro-forma basis for 2007, the combined company would have generated global volumes of 460 million hectoliters, revenues of $36.4 billion and EBITDA of $10.7 billion. "The transaction creates significant profitability potential both in terms of revenue enhancement and cost savings," the trwo companies said in a joint statement.

The two companies already have a US distribution partnership for InBev's European premium import brands including Stella Artois, Beck's and Bass. Anheuser-Busch's world-class sales and distribution system will continue to support the expansion of these brands in the US market.

August Busch IV, Anheuser-Busch president and CEO, who will joint he board of the merged company, said, ''Today's announcement brings new opportunities for Anheuser-Busch and its business, brands and employees. 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. 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.''

Given the nationalist passions the proposed acquisition had ignited in the US, the merged entity will make St. Louis in Missouri, where Anheuser-Busch is located, the headquarters for the North American region, and the global home of the popular American beer Budweiser, which would be the flagship brand of the merged entity. (See: InBev's bid for Budweiser parent ignites nationalist sentiments in the US)

The US is expected to generate about 40 per cent of the combined Anheuser-Busch InBev's revenues. Given the limited geographical overlap between the two businesses and the Anheuser-Busch's brewery footprint in the US, none of Anheuser-Busch's US breweries will face plant closures.

InBev CEO Carlos Brito will head the new operations as chief executive officer and the board of directors will include the existing directors of the InBev Board, August Busch IV and one other current or former director. In addition, the combined company's management team will be drawn from key members of both InBev's and Anheuser-Busch's current top management teams.

The expanded company will be geographically diversified with leading positions in the world's top five markets – China, US, Russia, Brazil and Germany – and balanced exposure to developed and developing markets.

The meger will result in significant growth opportunities from leveraging the combined brand portfolio, including the global flagship Budweiser brand and international market leaders such as Stella Artois and Beck's, maximizing the combination's unparalleled global distribution network and applying best practices across the new organization. Budweiser and the Bud Light are the largest selling beers in the world, and the combined company will have an unmatched portfolio of imports, local premiums and local core brands.

''We are very pleased to announce this historic transaction today, bringing together two great companies that share a rich history of brewing traditions," said InBev CEO  Carlos Brito."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.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.''

Branding synergy
Budweiser, together with Stella Artois and Beck's, will become the combined company's leading global brands. InBev has a history of successfully building brands around the world, which will complement the unparalleled strength of Anheuser-Busch's brand-building in the US.

Anheuser-Busch's partners fit very well with InBev's global franchise. Anheuser-Busch has equity investments in two companies with strong brands in two key markets: Mexico's Grupo Modelo, which owns Corona Extra, the number five brand globally; and China's Tsingtao, the leading Chinese premium brewer. In addition, Budweiser is a strong and growing national brand in China, and the two companies' footprints in China are complementary.

InBev's China business in southeastern China will be enhanced by Anheuser-Busch's strength in northeastern China.

"The combination will yield cost synergies of at least $1.5 billion annually by 2011 phased in equally over three years,"  the companies said in their joint statement. "Given the highly complementary footprint of the two businesses, such synergies will largely be driven by sharing best practices, economies of scale and rationalisation of overlapping corporate functions. InBev has a strong track record of delivering synergies in past transactions and is confident in its ability to achieve these synergies."

In addition, the two companies also see revenue opportunities through expansion of Budweiser on a global scale: InBev is the number one 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 expected to be neutral to normalised earnings per-share in 2009 and accretive beginning in 2010, and return on invested capital will exceed weighted average cost of capital during the second year after close.

InBev's controlling shareholder has agreed to vote its shares of InBev in favour of the combination. In light of the limited overlap between the InBev and Anheuser-Busch businesses, the combination should not encounter any significant regulatory issues, and is expected to be completed by the end of 2008.

InBev has retained Lazard as lead advisor, JPMorgan as co-lead advisor, Deutsche Bank, and BNP Paribas as financial advisors, and Centerview Partners as industry advisor. Legal advisors are Sullivan & Cromwell, Clifford Chance, and Linklaters.

Financial advisors to Anheuser-Busch are Goldman Sachs & Co., Citigroup Global Capital Markets Inc. and Moelis & Company and legal advisor is Skadden, Arps, Slate, Meagher & Flom LLP. Simpson Thacher & Bartlett LLP is legal advisor to the Anheuser-Busch Board.