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AB InBev approaches SABMiller in record industry combination

LONDON _ Anheuser-Busch InBev said it intends to make an offer for SABMiller to unite the world’s two biggest beermakers with brands including Budweiser and Peroni and create a company that would control about half the industry’s profit.

SABMiller gained as much as 24 percent, boosting its market value to about 60 billion pounds ($93 billion), and AB InBev rose as much as 12 percent. No offer has yet been made. SABMiller said it was told by AB InBev about its plans for a takeover, with AB InBev saying it wants to work with the board of SABMiller “toward a recommended transaction.”

The acquisition of SABMiller would be the biggest in the industry’s history and cap more than a decade of consolidation across brewing companies. A potential combination of the beermakers had been seen as likely for years as they have limited geographical overlap and are not controlled by a family foundation like their main competitors, Heineken NV and Carlsberg A/S.

“I’m glad to see this after the endless speculation of megabrew,” said Ross Colbert, an analyst at Rabobank International.

SABMiller shares were up 22 percent at 3,665 pence as of 1:02 p.m. in London. Any offer from AB InBev would have to be valued at at least 3,900 pence, or about 30 percent above Tuesday’s closing price, according to Trevor Stirling, an analyst at Sanford C. Bernstein. Before Wednesday, SABMiller’s stock had fallen 18 percent in a year.

“Given that SAB’s share price has been so weak in the last 12 months, it makes a deal much more affordable,” Stirling said in a note to investors.

The beer industry has used consolidation to stave off a slowdown in moreestablished markets such as Europe and the U.S., where drinkers are swapping to craft brews and wine and spirits, or merely drinking less. AB InBev, led by Chief Executive Officer Carlos Brito, hasboosted revenue more than fivefold in the last 10 years with the help of almost $100 billion in acquisitions. Its growth is now set to slow over the next five years, estimates compiled by Bloomberg show.

Weakening economies in Brazil and China, two of the growth engines for brewersin recent years, may have hastened AB InBev’s approach, according to Colbert. The resulting drop in beer consumption in those emerging markets “is driving the push for greater consolidation,” he said.

Under U.K. takeover rules, AB InBev has until 5 p.m. in London on Oct. 14 to either make an offer or walk away. SABMiller disclosed the approach in response to what it called “recent press speculation.”

Any deal would require the backing of Altria Group Inc., the largest shareholder in SABMiller with a 27 percent stake. AB InBev will also need to persuade the family of Alejandro Santo Domingo, among the richest clans in Colombia and the owner of a 14 percent stake in SABMiller.

To allow the deal to clear regulatory hurdles, analysts have said that SABMiller would need to exit its joint venture in the U.S. with Molson Coors Brewing Co., which is called MillerCoors LLC. AB InBev may also have to sell SABMiller’s 49 percent stake in CR Snow, its Chinese brewery partner. SABMiller also owns 20 percent of closely-held French drinks company Groupe Castel.

The two largest brewers have been seen as the end game for global beer mergers. An acquisition of SABMiller, led by CEO Alan Clark, would give AB InBev access to more than $7 billion of revenue in Africa with brands including Castle lager and almost $4 billion of sales in Asia, reducing AB InBev’s dependence on the Americas and Brazil.

With Latin America representing SABMiller’s biggest market, a deal would also broaden AB InBev’s presence in countries such as Colombia, Ecuador and Peru. Its Latin American brands include Cristal and Aguila.

AB InBev’s growth has been based largely around acquisitions since it was formed through a series of purchases by a group of Brazilian businessmen led by Jorge Paulo Lemann. Some analysts have speculated that Lemann’s 3G Capital could help orchestrate a takeover of SABMiller, just as it did when InBev NV bought Anheuser-Busch in 2008.

Lazard Ltd. and Freshfields Buckhaus Deringer LLP are advising ABI on its potential bid, people familiar with the matter said. SABMiller is being advised by Robey Warshaw LLP, JPMorgan Chase & Co. and Morgan Stanley, according to the company’s statement.

_ With assistance from Ruth David in London.

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