Colombia: SABMiller is moving closer to securing the $7 billion Bavaria beer deal

Brewing force SABMiller is close to securing a deal to buy Colombia's biggest brewer Bavaria for $7 billion, including debt, and hopes to wrap it up next month, Reuters cited sources close to the situation on Monday, June 20. Bavaria is worth around $6.8 billion, including some $1.7 billion of debt.

Bavaria shares have nearly doubled since starting 2005 at 27,100 pesos and before speculation over the auction began in January.

Colombian stock regulators asked on June 21 the top shareholder of brewer Bavaria about recent market-moving rumours that London-based SABMiller plans to buy the company. Citing local newspaper stories recounting rumours of an impending deal, Colombia's Stock Market Superintendency sent a letter to Julio Mario Santo Domingo, president of Bavaria's board, asking for information about any ongoing negotiations. "This office requires immediate communication from you related to this matter," says the letter, a copy of which was provided to Reuters.

SABMiller is competing with Dutch group Heineken in the race to win the hand of South America’s second largest brewer. However, SABMiller is expected to offer Bavaria's controlling Santo Domingo family better terms.

Both European-based brewers have been asked to renew their interest in Bavaria and put forward firm proposals to acquire the Bogota-based group before the end of this month, which could accelerate the long-running deal process, the sources added.

Bavaria, which has dominant beer market shares in Colombia, Ecuador, Peru and Panama, has attracted the interest of a host of international brewers because it represents the last major opportunity to gain large-scale access to Latin America.

The Santo Domingo family, which controls 70 percent of Bavaria, has run the rule over both suitors and now needs to weigh up the merits of links with both big brewers. "The Santo Domingo family has conducted due diligence on both potential buyers and is assessing the merits of each one," said one source close to the situation.

Senior SABMiller managers are working hard to try and seal a deal, and could offer the Santo Domingo family a 15 percent minority stake in an enlarged group and a seat on the board, the sources said. "SABMiller is clearly in the driving seat and determined to clinch a deal to gain one of the last remaining big regional brewing deals left," another source close to auction added.

Family-controlled Heineken is trying to attract the Santo Domingos with a plan for a group controlled by the two families. The Dutch family has acknowledged such a deal will reduce its stake in Heineken to less than 50 percent, they said.

But other sources say the timetable and deadlines of the auction remain vague one year after the process was kicked off and Bavaria's executives are unclear on what type of deal they favor.

SABMiller, which brews Miller, Castle and Peroni is keen to acquire Bavaria's Aguila, Cristal and Pilsner beers and gain a major presence in South America, which is dominated by InBev, formed last year from Belgian-based Interbrew's takeover of Brazil's AmBev.

SABMiller shares hit an all-time high of 905 pence in London in January before worries about the Bavaria deal undermined the stock. The shares ended Monday's session up 1.5 percent at 854-1/2p.

The world's four biggest brewers have all taken a close look at Bavaria, but the top two -- InBev and Budweiser-brewer Anheuser-Busch Cos. -- are not among the front runners, leaving third and fourth in the world SABMiller and Heineken to take up the running, the sources said.

Earlier this month, InBev Chief Executive John Brock said there were other people out there "substantially more interested in Bavaria than we are," while Anheuser is not keen on allowing the Santo Domingo family onto its share register. SABMiller and Heineken declined to comment.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .