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AB InBev (BUD) Bonds with South Africa for SABMiller Deal

It seems that Anheuser-Busch InBev SA/NV BUD is firing on all cylinders to win the regulatory approval for its much-awaited takeover of SABMiller plc SBMRY. Sources revealed that for the merger to sail forward, AB InBev agreed not to cut any jobs in South Africa for nearly five years following its merger with SABMiller, to retain the country’s full-time employment levels.

Additionally, this Zacks Rank #3 (Hold) company announced plans to invest nearly $68.8 million (1 billon rand) to fund the small farmers, local production and business development in the South African region. Also, AB InBev unveiled plans to work with the government to curtail the unsafe uses of alcohol.

Though SABMiller is currently based in London, the company’s roots go back to South Africa. Notably, SABMiller’s ancestor and wholly owned subsidiary – The South African Breweries Limited (or SAB) has been dominating the brewing space in the country with significant market share. Hence, the South African ministry’s nod was essential for this deal.

AB InBev and SABMiller had reached an agreement to create the “first truly global beer company”, valued at roughly $105 billion, back in Oct 2015. The combined entity is likely to control about one-thirds of the global beer market, leaving behind Heineken NV HEINY.

Ever since the announcement, AB InBev is hankering after regulatory approvals for the deal. Earlier this week, sources revealed that, in a drive to grab the approval of the European Commission, the Belgium-based brewer informed the European Union (EU) authority of its intention to sell three of SABMiller’s premium European beer brands to a Japanese brewing company, Asahi Group Holdings Ltd., for 2.55 billion euros.

The sale will include SABMiller’s Peroni, Grolsch and Meantime brands, along with their related businesses in Italy, the Netherlands, U.K. and internationally, minus certain U.S. rights. The EU has set May 24 as the deadline to provide its ruling on the deal. Additionally, AB InBev agreed to divest SABMiller's 58% stake in MillerCoors to Molson Coors Brewing Co. TAP for about $12 billion, in order to satisfy the U.S. regulators.

We believe that this merger is likely to benefit both the companies by bringing together their individually solid brand portfolios and innovative teams. Also, their robust geographical reach would enable the combined giant to serve all major beer markets that have strong growth potential.

Thus, this combined firm with a stronger network and enhanced brand structure would boost shareholder value, and cater to consumers of both entities by offering them a wider assortment.

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MOLSON COORS-B (TAP): Free Stock Analysis Report
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
SABMILLER PLC (SBMRY): Free Stock Analysis Report
HEINEKEN NV (HEINY): Free Stock Analysis Report
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