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Two days after revealing it was in talks with South American brewing giant AmBev, the Belgian brewer Interbrew today announced that the two companies had agreed to combine, in a deal that will create the world's largest brewing entity by volume.

Interbrew and Companhia de Bebidas das Américas (AmBev) will come together to establish InterbrewAmBev.

InterbrewAmBev will, on a 2003 pro forma basis, have a global market share of approximately 14%, combined revenue of €9.5 billion (US$11.9 billion) and EBITDA of €2.4 billion (US$3.0 billion).

"This platform, together with the combined group's enhanced financial strength, will enable InterbrewAmBev to leverage three global flagship brands Stella Artois, Beck's, and Brahma, while further strengthening specialty and local brands," Interbrew said in a statement.

The statement went on: "The formation of InterbrewAmBev will establish a top-tier performer in the global brewing industry, with the potential for the highest organic EBITDA growth of any major brewer.  Interbrew and AmBev have estimated that the combined group can generate €280m (US$350m) of annual synergies through a combination of technical, procurement, and other general and administrative cost savings, and commercial synergies including cross-licensing of existing brands." 

The transaction is expected to be earnings accretive to Interbrew shareholders as of 2006, post- synergies and pre-goodwill. For AmBev, the transaction is accretive in the first full year of combined operations.

The new entity is expected to sell 215m hl in total volume, of which beer is 190mhl and soft drinks 25 m hl on a pro forma 2003 basis.It will  rank number one or number two in more than 20 beer markets.

"Joining with AmBev, Latin America's leading brewer, and its world-class management team, is great news for our consumers, employees, distributors and shareholders. The combination preserves the best of both companies, while enhancing our profitability and prospects," said John Brock, chief executive officer of Interbrew.  "For Interbrew, it also represents an opportunity to enter some of the fastest growing beer markets in the world."

"This agreement offers AmBev a unique opportunity to combine with Interbrew and establish a truly global powerhouse, with strong positions in the world's best markets," said Marcel Herrmann Telles, Co-Chairman of AmBev. "A unified operation for the Americas, from Canada to Argentina, is a very exciting prospect. More broadly, we can now achieve our long-term goal of opening the world's largest markets for AmBev's brands."

Victório Carlos de Marchi, president of Fundaçao Antonio e Helena Zerrenner and AmBev Co-Chairman, said: "This is a groundbreaking combination that will strengthen the future of AmBev as the premier consolidator in the brewing sector in the Americas. This will benefit Brazil, as well as our customers, employees, and shareholders. It will secure the growth of AmBev's brands throughout the Americas and beyond."

AmBev ordinary shares are currently held by three groups of stockholders: Braco S.A., a Brazilian holding company for the current interests of a group of AmBev's controlling shareholders; Fundaçao Antonio e Helena Zerrenner, a Brazilian foundation that primarily provides health benefits to AmBev employees and their dependents, and the outstanding public shareholders of AmBev. Interbrew is majority-owned by Stichting Interbrew, a Dutch foundation that represents the company's founding families.

Interbrew will issue 141.7m new Interbrew shares to the controlling shareholders of Braco S.A. in exchange for 100% of Braco. Braco S.A. and its 98.64% owned subsidiary ECAP together own 8.25 billion AmBev ordinary shares, representing a 52.8% voting interest in AmBev.  Excluding the interest of the ECAP minorities, Interbrew will hold a 21.8% economic interest in AmBev as a result of this part of the transaction.

AmBev will issue 9.5 billion AmBev ordinary shares and 13.8 billion preferred shares to Interbrew and assume debt of US$1.5 billion (including promissory notes of US$506 million) in exchange for Interbrew's wholly-owned Canadian subsidiary Labatt, including its 30% interest in Femsa Cerveza SA de CV and its 70% interest in Labatt USA. Labatt will be merged into AmBev.

In accordance with Brazilian corporate law, following closing, InterbrewAmBev will commence a Mandatory Tender Offer (MTO) for all remaining outstanding AmBev ordinary shares owned by the public.

Fundaçao Antonio e Helena Zerrenner will retain its shares in AmBev and has renewed and extended its shareholders agreement with Braco S.A until 2019.

Both companies will retain their separate exchange listings. The transaction, which is subject to customary regulatory conditions and shareholder approval, is expected to be completed by the second half of 2004.

Pierre Jean Everaert will be appointed chairman of InterbrewAmBev at the time of closing, and John Brock will be appointed chief executive officer. InterbrewAmBev's board will be composed of four members appointed by the members of the existing Stichting Interbrew, four members appointed by the current Braco shareholders, and six independent directors.

The headquarters for InterbrewAmBev will be in Leuven, Belgium, and the headquarters for AmBev will be in Sao Paulo, Brazil.  AmBev will have two Co-CEOs, one for North America and one for Latin America, both reporting to the AmBev Board based in Brazil. They will also be members of the InterbrewAmBev executive board of management led by John Brock.


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