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AB InBev Makes $100 Billion SABMiller Offer Public After Snubs

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Wednesday, 07 Oct 2015 08:06 AM

Anheuser-Busch InBev NV made a third offer for SABMiller Plc, this time going public with a 65.2-billion pound ($99.7 billion) proposal that promptly won support from its biggest shareholder — but not from the target.

The move, which SABMiller noted was barely higher than the previous offer, raised the stakes in the back-and-forth battle over combining the world’s two largest brewers. A merger would create a beverage empire controlling the No. 1 or 2 positions in 24 of the world’s 30 biggest beer markets, according to Exane BNP Paribas.

As with the previous offers from the maker of Budweiser, this one had two tiers: AB InBev would pay 42.15 pounds a share in cash for a majority of the stock. The price is 44 percent above London-based SABMiller’s closing level on Sept. 14, the day before renewed speculation about a deal, AB InBev said in a statement Wednesday. AB InBev proposes paying a lower price, 37.49 pounds a share, in cash and stock for the stakes held by SABMiller’s two biggest shareholders.

“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."

SABMiller’s largest shareholder, Altria Group Inc., with a 27 percent stake, said in a statement that it supported the approach. Altria urged SABMiller’s board to engage “promptly” with AB InBev.

SABMiller rose 1.9 percent to 36.91 pounds at 11 a.m. in London. AB InBev gained 2.3 percent to 100.30 euros.

Previous Offers

The world’s No. 2 beermaker has already rejected two proposals made privately of 38 pounds a share and 40 pounds a share, the Leuven, Belgium-based company said. Under U.K. takeover law, AB InBev has until Oct. 14 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.

While SABMiller’s board will review the latest proposal, it’s only marginally higher than a suggestion of 42 pounds a share that AB InBev made verbally on Monday when the two companies were discussing the 40-pound-a-share proposal, SABMiller said in a statement Wednesday. The board, excluding representatives of Altria, would have rejected the 42-pound-a-share offer as too low, the company said.

“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.

Emerging Markets

SABMiller can create more value by remaining independent and pursuing growth in emerging markets such as Africa and Latin America, the company said.

“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."

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 percent 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.

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.

Tax Savings

Under the cash-and-stock alternative, shareholders owning 41 percent of SABMiller could opt for the lower payout. While accepting some stock would reduce the tax hit that would come from selling for cash, it also lowers the price that AB InBev would have to pay. 

A formal offer is conditional on Altria and SABMiller’s second-largest shareholder, the family of Colombian investor Alejandro Santo Domingo, accepting the partial share alternative, AB InBev said. Those two investors own just less than 41 percent.

AB Inbev’s Brito said the company’s proposal was crafted with input from BevCo Ltd., the Santo Domingo family holding company. It owns a 14 percent stake in SABMiller. AB Inbev doesn’t have the support of Bevco, the potential acquirer said in a statement.

World Domination

The transaction would be the biggest of 2015 — already a bumper year for dealmaking — and among the largest takeovers ever, according to data compiled by Bloomberg. Together, AB InBev and SABMiller would outrank all other consumer-staples companies by earnings, according to the Exane BNP Paribas analysts, who estimate the combined company would make $25 billion before interest, tax, depreciation and amortization in 2016.

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.

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Anheuser-Busch InBev NV made a third offer for SABMiller Plc, this time going public with a 65.2-billion pound ($99.7 billion) proposal that promptly won support from its biggest shareholder - but not from the target.The move, which SABMiller noted was barely higher than...
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2015-06-07
Wednesday, 07 Oct 2015 08:06 AM
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