Brewing giant Interbrew of Belgium announced plans Wednesday to take a controlling stake in AmBev of Brazil in a stock and debt swap deal to create the world's largest brewer.
The new firm, InterbrewAmbev, would have a global market share of approximately 14 percent, combined revenue of $11.9 billion and pretax earnings of $3 billion, according to an Interbrew statement.
Interbrew will issue 141.7 million new Interbrew shares for 100 percent of Braco S.A., a Brazilian holding company for the current interests of a group of AmBev's controlling shareholders.
AmBev will issue 9.5 billion AmBev ordinary shares and 13.8 billion preferred shares to Interbrew and assume debt of $1.5 billion in exchange for Interbrew's wholly owned Canadian subsidiary Labatt, including its 30 percent interest in Femsa Cerveza SA de CV and its 70 percent interest in Labatt USA. Labatt will be merged into AmBev.
In an interview released by Cantos, a London-based corporate information provider, Interbrew chief executive John Brock said that "when everything is settled," Interbrew will own 57 percent of the economic interest and 85 percent of the total voting interest in AmBev.
However, he insisted it was not a takeover.
"We'll still end up with two very separate publicly traded companies but where we can look for opportunities to run them together, that's what we'll do," he said in the Cantos interview, which was paid for by Interbrew.
InterbrewAmBev will be headquartered in Leuven and traded on the Brussels exchange, while AmBev will continue to be a publicly traded company on the Brazilian and the New York stock exchange.
Brock said AmBev will have two co-CEOs _ one for North America, one for South America _ who will report to the AmBev board and to the global board in Belgium. He said he expected the deal to close by the end of the year, pending regulatory approval.
"The combination preserves the best of both companies, while enhancing our profitability and prospects," Brock said in the Interbrew statement. "For Interbrew, it also represents an opportunity to enter some of the fastest growing beer markets in the world."
Marcel Herrmann Telles, co-chairman of AmBev, said the prospect of unified operations "from Canada to Argentina" was "very exciting" for AmBev.
"More broadly, we can now achieve our long-term goal of opening the world's largest markets for AmBev's brands," he said in the Interbrew statement.
Analysts said a deal would be worth billions of dollars and might spark a bidding war for AmBev, the world's fifth-largest brewer and the dominant player in Latin America. They valued AmBev at about $10 billion.
AmBev didn't use the term "merger" in an earlier statement about the deal, saying only that it was "negotiating a possible worldwide transaction with Interbrew."
A merger with Belgium-based Interbrew, the world's third-largest brewer, would result in the largest beer maker in the world by volume and No. 2 by revenue with an estimated $12.4 billion in annual sales. The industry leader, St. Louis-based Anheuser-Busch, had sales of $14.1 billion in 2003.
AmBev has a presence in every Latin American country except Colombia and Mexico, and it sells two-thirds of the beer in Brazil's massive 2.1 billion gallon market.
Both companies have expanded rapidly through acquisitions in recent years, and Interbrew is keen on winning a bigger foothold in emerging markets where beer consumption is rising, analysts say.
While beer consumption in the United States and Western Europe is largely stagnant, it is expected to increase 5 percent annually over the next five years in emerging markets like Brazil, a country of 178 million people that has the world's fourth largest beer market.
Investors worried about how much Interbrew might pay to reach a deal sent the company's shares down nearly 2 percent Tuesday, following a 3 percent decline Monday.
AmBev's Brazilian shares fell more than 6 percent Tuesday amid speculation the deal would not be a merger, after rising more than 4 percent Monday amid thoughts it would.