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Why SABMiller shareholders could do better than AB InBev's if the takeover deal goes through

by , 02 November 2015

SABMiller and AB InBev continue talks about the terms of a deal which could see the formation of the world's largest brewer.

But when deals like this happen, are the shareholders better off as a result?

Let's take a closer look…


The beneficiaries of a takeover

 
Research shows that the shareholders of a bidding company in a takeover tends to be worse off once it goes through. 
 
A study conducted by KPMG around 15 years ago found that deals only benefitted the bidding company in just 17% of cases. More than 50% actually destroyed value.
 
KPMG followed up this report five years ago and found that only 33% created value, 33% didn’t have any effect and the other 33% destroyed value.
 
Its findings heavily suggest that takeovers have a high tendency to disappoint, Cris Sholto Heaton in Money Week explains.
 
Another study conducted by Robert Bruner from the University of Virginia found a similar outcome from his research. Around 20% to 30% saw value created for the bidding company, but the acquired company’s shareholders were usually better off.
 
Another interesting study by consultants McKinsey by Myoung Cha and Theresa Lorriman found that the size of the deal has a bearing. For instance, large pharmaceutical companies merging between 1995 and 2011 produced excessive returns for shareholders.
 

What does this mean for SABMiller and AB InBev

 
The study by Cha and Lorriman points to the merger of the two companies being beneficial. 
 
But when looking at the performance of bidding companies in comparison to acquired companies, shareholders of SABMiller stock may see a more favourable outcome.
 
Only time will tell if the takeover goes through and gains the necessary approvals which shareholders will reap the benefits of the deal.
 
So there you have it. Why SABMiller shareholders could do better than AB InBev’s if the deal goes through.
 
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Why SABMiller shareholders could do better than AB InBev's if the takeover deal goes through
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