John Davies and Simon Marchant of Freshfields Bruckhaus Deringer, London. (Jon Enoch)
Massive. If there’s one word that sums up the acquisition of U.K.-based brewing company SABMiller plc by Anheuser Busch InBev SA, that is surely it.
Everything about the transaction, which created roles for more than a dozen international law firms, was almost comically oversized. The $106 billion deal is the largest takeover of a U.K. company. It was financed by a $75 billion loan facility and a $46 billion bond offering that was more than $60 billion oversubscribed—the largest commercial loan and the most popular bond issue in history. The combined company will be worth $275 billion.
Even the break fee, the penalty that InBev would have had to pay if it walked away from the deal, was equivalent to a decent-sized M&A transaction in its own right, at a staggering $3 billion, the largest break fee ever negotiated.
SAB’s lead adviser, Linklaters, effectively started working on the deal long before any bid was made. Several years ago, SAB recognized that its aggressive expansion made it an attractive target itself, and decided to refresh its merger defense strategy. Despite a long-standing relationship with Hogan Lovells—general counsel John Davidson spent his entire career at legacy Lovells before joining SAB in 2006—the company brought in Linklaters for its expertise in big-ticket M&A. (Hogan Lovells would later have a support role on the InBev deal.)
When InBev, the world’s largest brewer and owner of the Budweiser and Corona brands, made its opportunistic approach, SAB was ready. The company rejected five consecutive offers, but came under pressure after its largest shareholder, U.S. tobacco company Altria Group Inc., publicly announced that it wanted to accept the latest improved offer.
Unusually, Altria had three nominee directors on the SAB board. “You don’t normally have key shareholders in a public deal of this size, let alone have them on the target board,” says Simon Marchant, a senior corporate partner at Freshfields Bruckhaus Deringer, which acted for InBev. “It made for an interesting dynamic.”
With Altria’s directors refusing to join the other 12 board members in rejecting InBev’s offer, it was only a matter of time before SAB conceded. “When your major shareholder decides it’s going to sell, you’re playing with one hand tied behind your back,” says Linklaters senior partner Charlie Jacobs. A deal was eventually struck when InBev offered a 50 percent premium to SAB’s share price.
The transaction was put together over eight weeks of intense negotiations last fall. Jacobs, who had advised SAB on the sale of its stake in South African hotel and entertainment group Tsogo Sun Holdings, spent the entire period at SAB’s London headquarters with fellow Linklaters corporate partner Nick Rumsby. “It was like being a doctor on call—we had to drop everything,” Jacobs says. The pair met the company’s chairman and deal team every day at 7:30 a.m. and 5 p.m.
A deal complex structure combined an offer and merger process in Belgium, where InBev is based, with a U.K. scheme of arrangement—a common structure in U.K. M&A deals that involves a court-approved agreement between a company and its shareholders. A new holding company was created, listed in Belgium, Mexico, South Africa and the United States.
Lawyers also faced significant antitrust challenges in attempting to combine two of the world’s biggest beverage companies. The regulatory approval process took a full eight months, with the companies having to agree to a significant disposal of assets across the U.S., Europe and Asia to gain antitrust clearance in more than 30 countries.
“We went into the process knowing that we’d have to make concessions to get the deal through,” says Marchant. Among the divested assets, SAB’s European beer brands were sold for $2.9 billion to Japanese brewer Asahi Group Holdings Ltd., which was advised by Allen & Overy, while its 58 percent stake in the MillerCoors joint venture was bought for $12 billion by Molson Coors Brewing Co., which was represented by Kirkland & Ellis.
Just as the deal was nearing completion, the U.K.’s Brexit vote threw a late monkey wrench into the works. The sharp decline in U.K. currency that followed the shocking referendum result significantly devalued InBev’s offer, which was made in British pounds, and led to a revolt of activist SAB shareholders. InBev was forced to increase its offer by one pound per share, to 79 billion pounds ($106 billion)—the seventh price hike since its original bid.
Freshfields, Linklaters and the other law firms advising on the transaction were well compensated for their efforts. A document sent to SAB shareholders that outlined the terms and conditions of the transaction revealed that the two companies had run up almost $2 billion in advisory fees, with $261 million going to the various law firms on each side. All the lawyers involved will no doubt drink to that.
Grand Prize Winner
InBev / SABMiller
AB Inbev N.V.: Cravath, Swaine & Moore; Freshfields Bruckhaus Deringer; Clifford Chance; Sullivan & Cromwell
SABMiller plc: Linklaters; Hogan Lovells; Cleary Gottlieb Steen & Hamilton; Bowman Gilfillan
Altria: Wachtell, Lipton, Rosen & Katz; MacFarlanes; Loyens & Loeff
Santo Domingo Group: Simpson Thacher & Bartlett; Herbert Smith Freehills
Molson Coors: Kirkland & Ellis; Cleary Gottlieb Steen & Hamilton