Huge Mergers in Tech, Beer

October 13th, 2015 by

In both the bustling technology sector and the big-money world of brewing beer, a pair of the largest mergers ever seen in either industry are close to finalizing agreements.

beerThe parent companies that brew the Anheuser Busch and Miller brand beers, headquartered in Belgium and the U.K., respectively, have indicated their intention to merge. This follows the trend of greater corporate consolidation through frequent M&As in the beverage business.

Meanwhile, the world’s third-largest computer maker, Dell (NASDAQ:DELL), is close to securing a massive acquisition of an IT service provider firm, EMC (NYSE:EMC).

Absorbing the Competition

The two largest brewers in the world, AB InBev (NYSE:BUD) and SABMiller (LON, JSE:SAB), are in the process of merging into a single brewing company. The deal is reportedly worth $106 billion (about £69 billion), as the corporate board for SABMiller finally accepted the takeover offer of £44/share from AB InBev, the fifth offer of successively higher prices per share. If the deal goes through, as most experts predict it will, it will rank among the 5 largest mergers in corporate history, as well as the largest-ever acquisition of a firm who is domiciled in the U.K. (SABMiller).

The lineup of AB InBev beer brands. Source: brandchannel.com

The lineup of AB InBev beer brands. Source: brandchannel.com

The sale still will require the approval of antitrust regulators, who may be worried about monopolization of the American market for brewers. The combined AB InBev — SABMiller company would cover roughly 70% of the market share for beer in the United States. According to Reuters,

“The new group would combine AB InBev’s Budweiser, Stella Artois and Corona lagers with SABMiller’s Peroni, Grolsch and Pilsner Urquell. AB InBev would add certain Latin American and Asian breweries to its already large presence and, crucially, enter Africa for the first time.”

Outside of any antitrust concerns, the only hiccup may be the competing positions of the two firms in the soft drink industry. While AB InBev has ties with PepsiCo (NYSE:PEP), SABMiller distributes Coca-Cola (NYSE:KO) products.

Biggest Tech Deal Ever

dellSomewhat overshadowed by the massive beer merger was the announcement that computer maker Dell would be absorbing the information technology services company EMC Corporation for a reported $67 billion. This would represent the biggest merger in the tech sector ever.

EMC saw its shares rally more than 10% since news coverage of a possible merger broke on October 8th. At the time the story broke, several other computer companies were also in discussions with EMC, including Oracle (NYSE:ORCL), Cisco (NASDAQ:CSCO), and Hewlett-Packard (NYSE:HPQ). The company also has a “superior offer” clause in the pending deal that allows it to accept a better offer from a competing buyer in the unlikely event that one emerges. In this case, Dell would be compensated with a $2 billion fee.

Debt Hangover

debtOne commonality between the two mega-deals is that they are both being largely fueled by the acquiring companies taking on huge debt loads. Dell will heap on another $50 billion in debt (after already holding debt worth $10 billion) in order to complete the deal. (JPMorgan CEO Jamie Dimon supposedly assured EMC that Dell would definitely be able to get such lines of credit.) In the case of the beer merger, the new combined firm will reportedly take on $70 billion in new debt.

Not unlike the enormous reliance upon debt to finance new stock buybacks (repurchase agreements) for big corporations, it seems that the new normal for industry consolidation is to do so through huge piles of debt. Both Dell and the Anheuser Busch parent are apparently confident in their ability to service the debt and come out on the winning end of their deals.

Other Noteworthy M&A Moments

According to Business Insider, here are some of the biggest corporate mergers or acquisitions of all-time. The AB InBev — SABMiller merger would rank somewhere in this list; the Dell deal, even as the largest M&A in tech history, still doesn’t even sniff the Top 10.

Vodafone AirTouch — Mannesmann . . . . . . . . . . . . . . . . . . $172 billion (1999)
Verizon Communications — Verizon Wireless . . . . . . . . . $130.1 billion (2013)
America Online — Time Warner Inc . . . . . . . . . . . . . . . . . . $112.1 billion (2000)
Pfizer — Warner-Lambert . . . . . . . . . . . . . . . . . . . . . . . . . . $111.8 billion (2008)
Altria Group — Philip Morris International . . . . . . . . . . . . $111.3 billion (2008)
AT&T — BellSouth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101.9 billion (2006)
Royal Bank of Scotland Group — ABN AMRO Holdings . . . $95.6 billion (2007)
Exxon — Mobil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85.6 billion (1998)
Royal Dutch Shell — BG Group . . . . . . . . . . . . . . . . . . . . . . . $81.5 billion (2015)

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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