$107 BILLION: THE BIGGEST BEER DEAL IN HISTORY

FILED NOVEMBER 11, 2015

Dear Client:

When Anheuser-Busch InBev decides to do a deal, it gets done. And that's what is about to happen. It's been close to a month since ABI and SABMiller agreed to the deal in principle, this morning the two parties finally reached an "agreement on the terms of a recommended acquisition."

Now it's nearly a reality (dependent on certain criterium, antitrust blah blah). And for the first time, ABI is offering not a full cash deal, but the option to take restricted stock as well. Altria and certainly BevCo, the largest shareholders of SABMiller, will take stock due to tax reasons and also to be a part of a big Kahuna brewer, which will control about 30% of global beer sales even with divestitures. Heineken, the next largest global brewer, will only command about 9 or 10% of volumes. ABI's (NewCo they call it now) will command even more in gross margin.

A-B InBev ran through a litany of reasons as to why they chose to pursue the deal, but "in short," ABI "believes that more can be achieved together than apart." And here's why: ABI believes it can achieve pre-tax cost synergies of at least US $1.4 billion per annum (compared to SABMiller's $221 million in previously achieved savings). "The AB InBev Directors expect these synergies to be phased in over four years following Completion and to reach a recurring run rate of at least US$1.4 billion per annum by the end of the fourth year following Completion," says ABI in a release.

SABMILLER SAYS: Jan du Plessis, Chairman of SABMiller said: "SABMiller has an unmatched footprint in fast-growing developing markets, underpinned by our portfolio of iconic national and global brands. However, AB InBev's offer represents an attractive premium and cash return for our shareholders, and secures earlier delivery of our long-term value potential."

They've come a long way from selling beer to miners in Jo'burg. Graham Mackay is either turning in his grave, or smiling that he created a huge global brewery from a much smaller regional South African backwater brewery.

MOLSON COORS TAKES OVER MILLERCOORS. As we expected, ABI simultaneously announced the complete divestiture of SABMiller's stake in the MillerCoors joint venture to Molson Coors. The "total transaction is valued at $12 billion," (20% more than what the financial press and analysts had previously speculated. That's a big nut for Molson Coors to swallow).

In addition to full control of MillerCoors operations, Molson Coors will also "acquire full ownership of the Miller brand portfolio outside of the U.S. and retain the rights to all of the brands currently in the MillerCoors portfolio for the U.S. market, including import brands such as Peroni and Pilsner Urquell."

That's good news for Molson Coors, as it recently lost its ability to sell the Miller family of brands in Canada, costing the company "more than $60 million in sales," per WSJ.

Analysts believe Molson Coors can cut nearly a half a billion dollars in costs from the JV by "by eliminating brewers along the U.S.-Canadian border, reducing staff and improving procurement," per report.

WHAT IT MEANS TO THE U.S.? Well, Molson Coors will be the sole owner of MillerCoors. They can possibly finally operate as one unified company without two bosses. Secondly, both companies will be laden with new debt. So the pressure is on.

More later today as it comes in …….

BEER BRIEFS:

ABI TO TESTIFY ON EUROPEAN TAX DEAL. Anheuser-Busch InBev is one of the eleven companies taking the stand next week at an EU tax hearing. The companies will be "quizzed by EU lawmakers on their European tax deals as part of a campaign to ensure multinationals pay their fair share of taxes," per Reuters. The only ruling that can come from the Parliament's tax committee is a "non-binding recommendation at the end of November," but the exposure from the hearing "will likely ramp up the pressure on companies seeking to minimize tax, and governments," per report. Also in attendance at the hearing will be HBSC, Google, Barclays, Coca-Cola Co., Facebook, Ikea, McDonald's, Philip Morris International, Walt Disney Co. and Amazon, who has already attracted the Commission's attention over its Luxembourg tax deal.

BEER STABILIZES AFTER STRONG GROWTH. Wells Fargo put out a note on trends yesterday on Nielsen all-channel data the four weeks to 10/31. Beer dollar sales were up 3.5% vs. 4.3% for 12 weeks, with pricing growth of 3%. A-B and MillerCoors are struggling a bit vs. longer trends, with price increases: "AB InBev $ sales were down -0.1% (+0.6% for 12-wks) as a result of avg. eq. price increase of +1.5% and -1.7% eq. unit volume declines," per note. "MillerCoors $ sales were down -1.1% (-0.4% for 12-wks) with average pricing growth of +1.1% and -2.2% eq. volume declines." Of course, Constellation beer is still seeing growth, up almost 21% in sales (about same for 12 weeks). Boston Beer was up 6.1%, and Heineken was up 2.3%.

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