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Business News/ Companies / AB InBev offers $104 billion for SABMiller after two snubs
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AB InBev offers $104 billion for SABMiller after two snubs

The Budweiser maker is willing to pay 42.15 a share in cash for a majority of its nearest competitor, whose brands include Peroni and Grolsch

AB InBev proposes paying a lower price, £37.49 a share, in cash and stock for the stakes held by SABMiller’s two biggest shareholders. Photo: BloombergPremium
AB InBev proposes paying a lower price, £37.49 a share, in cash and stock for the stakes held by SABMiller’s two biggest shareholders. Photo: Bloomberg

Paris: Anheuser-Busch InBev NV offered to buy SABMiller Plc for about £68.2 billion ($104 billion), seeking to combine the world’s two largest brewers in a record industry deal after SABMiller spurned two previous proposals made privately. SABMiller said it will review the latest approach.

The Budweiser maker is willing to pay £42.15 a share in cash for a majority of its nearest competitor, whose brands include Peroni and Grolsch. The price is 44% above London-based SABMiller’s closing level on 14 September, the day before renewed speculation about a deal, AB InBev said in a statement Wednesday. AB InBev proposes paying a lower price, £37.49 a share, in cash and stock for the stakes held by SABMiller’s two biggest shareholders.

SABMiller rejected two prior offers made privately of £38 pounds a share and £40 a share, the Leuven, Belgium-based company said. Under UK takeover law, AB InBev has until 14 October to make a formal offer or it must walk away, and if it doesn’t bid it can’t renew its takeover effort for six months.

“We continue to work towards a recommended transaction, it’s just that after a couple weeks trying the private route we didn’t get any meaningful engagement from the board and with the deadline approaching we felt it was important for SABMiller shareholders to understand the compelling opportunity and look at our proposal," AB InBev chief executive officer Carlos Brito said on a conference call with analysts.

While SABMiller’s board will review the latest proposal, it’s only marginally higher than a proposal of £42 a share that AB InBev made verbally when discussing the 40-pound-a-share bid, the company said in a statement today. “AB InBev needs SABMiller but has made opportunistic and highly conditional proposals, elements of which have been deliberately designed to be unattractive to many of our shareholders." SABMiller chairman Jan du Plessis said in the statement. “AB InBev is very substantially undervaluing SABMiller."

SABMiller’s largest shareholder, Altria Group Inc., said in a separate statement it supports the approach and urged SABMiller’s board to engage “promptly" with AB InBev.

After years of speculation, the approach was hastened by the impact of slowing economies in the emerging markets of China and Brazil and after a decade of consolidation in the industry eliminated smaller targets. A 20% drop in SABMiller shares in the months preceding AB InBev’s approach and the prospect of an end to cheap credit also served as catalysts.

Tax savings

The proposal includes an alternative that would allow shareholders owning 41% of SABMiller to take a mix of cash and stock, thus reducing the tax hit that would come from selling for cash and lowering the price that AB InBev would have to pay. Most SABMiller shareholders will accept the cash offer, since the cash-and-stock mix has a lower value of £37.49 a share, AB InBev said. Altria, which has a 27% stake, said it would be prepared to accept the partial share alternative.

SABMiller rose 2.6% to £37.18 at 8:10am in London. AB InBev gained 2.8% to €100.80.

“This is not, in our view, intended as ABI’s concluding proposal," said James Edwardes Jones, an analyst at RBC Capital Markets. “But it is likely to put pressure on SAB’s management to engage and at least there is now a formal proposition to discuss."

World domination

The offer price would be compelling for SABMiller’s public shareholders while providing a continuing attractive investment for Altria and the family of Alejandro Santo Domingo, among the richest clans in Colombia and the owner of a 14% stake in SABMiller, AB InBev said.

The transaction would be the biggest of 2015 — already a bumper year for dealmaking — and the fourth-largest takeover ever, according to data compiled by Bloomberg.

Together, AB InBev and SABMiller would be the world’s largest consumer-staples company by earnings, according to Exane BNP Paribas analysts, who estimate the combined company would make $25 billion before interest, tax, depreciation and amortization in 2016. The enlarged brewer would have the number one or two positions in 24 of the world’s 30 biggest beer markets, they estimate.

Brewers face their biggest challenge in half a century as consumers shift from mid-range mass-produced beers either to premium, microbrew or discount products, McKinsey & Co. analysts said in a report in June.

Under the partial share alternative, the new stock would be a separate class that wouldn’t be admitted to trading on any exchange and would be subject to a five-year lock-up, according to the statement. After five years, the shares would be convertible into AB InBev’s ordinary stock on a one-for-one basis. The new class would have the same voting and dividend rights as the ordinary shares.

Lazard Ltd. and Freshfields Bruckhaus Deringer LLP are advising AB InBev on its potential bid. SABMiller is being advised by Robey Warshaw LLP, JPMorgan Chase & Co. and Morgan Stanley. Bloomberg

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Published: 07 Oct 2015, 04:35 PM IST
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