By Saabira Chaudhuri And Shayndi Raice
LONDON-- SABMiller PLC's board has agreed on the key terms of a
sweetened potential takeover offer by Anheuser-Busch InBev NV,
valuing it at GBP67.9 billion ($104.2 billion) and setting the
stage for the creation of a brewing behemoth that would dominate
much of the world's beer market.
After weeks of back and forth, SABMiller's board has agreed to
unanimously recommend to its shareholders AB InBev's proposal to
pay GBP44 a share to buy the London-based brewer, marking a 50%
premium to its share price on Sept. 14, the day before media
speculation about a potential deal emerged.
For 41% of stock, AB InBev is offering a partial-share
alternative, essentially a combination of cash and unlisted stock,
with a five-year lockup period, translating into a lower per-share
price of GBP39.03. The alternative was devised for SABMiller's two
largest shareholders, Altria Group Inc. and BevCo Ltd., an
investment vehicle of Colombia's Santo Domingo family, and helps
them with taxation and potential accounting issues. Other
shareholders can elect to take the alternative as well, in which
case Altria's and BevCo's stakes in AB InBev shares would be
diluted and topped off with cash.
Altria, which owns about 27% of SABMiller, had told SABMiller's
board privately early last week it was willing to accept an offer
of GBP42 a share, people familiar with the matter said, before
publicly saying it would accept AB InBev's proposal of GBP42.15 a
share. The Santo Domingo family, which owns about 14% of SABMiller,
remained supportive of the board throughout the negotiations, said
people familiar with the matter.
The turning point for the deal came late Sunday night, when AB
InBev Chief Executive Carlos Brito sent a note to SABMiller asking
for a meeting early Monday morning, people familiar with the
negotiations said. Mr. Brito said he would bring along AB InBev
Chairman Olivier Goudet, which SABMiller took as a sign that their
rival was ready to take a more conciliatory approach, the people
said.
After AB InBev's proposal of GBP43.50 a share on Monday,
SABMiller decided it was ready to fully engage in negotiations,
said people familiar with the matter. Other than the price, the
negotiations centered on the large $3 billion breakup fee SABMiller
was requesting, said the people.
The day was spent in and out of meetings, with the two boards
agreeing to a deal around 8 p.m. Monday night, one of the people
said. Advisers huddled in investment bank Lazard's London office
well past midnight, preparing for an announcement early Tuesday
morning, the person said.
AB InBev's next challenge is to get regulatory approval for the
deal, which is expected to face antitrust scrutiny around the world
and could take as long as a year to close, according to some
antitrust experts.
The biggest regulatory hurdle is likely to be the crucial U.S.
market, where Belgium-based AB InBev already has a roughly 45%
market share and London-based SABMiller controls a further 25%
through its MillerCoors LLC joint venture with Molson Coors Brewing
Co. AB InBev was forced to dramatically restructure its $20.1
billion acquisition of Mexican brewing giant Grupo Modelo SAB in
2013 after the U.S. Justice Department sued to block the deal.
Another potential regulatory headache is China, where AB InBev
had a 14% market share last year, according to Euromonitor. Chinese
authorities could require the brewer to exit SABMiller's joint
venture with China Resources Enterprise Ltd. , which controls 23%
of the market and produces the top-selling Snow brand. Some
divestitures could also be required in Latin America.
AB InBev will be pressing for U.S. regulatory approval even as
the Justice Department is investigating the brewer's recent
acquisitions of two California distributors. The brewer confirmed
the investigation on Monday, saying it is cooperating with the
Justice Department. Regulators are looking into whether AB InBev's
acquisitions would make it harder for craft brewers and other
competitors to get their beer on shelves, according to people
familiar with the matter.
The latest proposal, unlike the prior ones, includes a provision
for SABMiller shareholders to receive dividend payments during the
period before the deal closes. Target companies often suspend
dividends after agreeing to a deal. Retaining the dividends was a
key part of recent negotiations by SABMiller's board, said a person
familiar with the talks, and increases the amount SABMiller's
shareholders get by about GBP1.3 billion.
SABMiller shares were up 9% at GBP39.50 in afternoon London
trading. If completed, the deal would be the largest acquisition of
a London-listed stock and the largest in the drinks industry,
according to Dealogic. It would easily be the largest deal agreed
on so far this year.
SABMiller has asked the U.K. Takeover Panel to extend the
so-called put-up-or-shut-up deadline, under which AB InBev needs to
make a firm offer for it or walk away, to Oct. 28. The previous
deadline was Wednesday.
The revised proposal is the latest of several AB InBev has made
for SABMiller in recent weeks and comes after the Belgian brewer on
Monday said it was prepared to offer SABMiller's shareholders
GBP43.50 a share in cash and a partial-share alternative of
GBP38.88, translating into a combined price of GBP67.4 billion.
SABMiller had rejected the proposals before Monday's, saying
they significantly undervalued it.
A tie-up between the two beer companies, if successful, would
bring AB InBev brands such as Budweiser, Corona and Stella Artois
together with SABMiller's Pilsner Urquell, Grolsch and Peroni, and
give the combined company a major presence in the U.S., China,
Europe, Africa and Latin America. Together, AB InBev and SABMiller
sell more than 30% of the world's beer.
A question mark hangs over the fate of the two brewers' bottling
arrangements with rivals Coca-Cola Co. and PepsiCo Inc. SABMiller
has disclosed in regulatory filings that a change of control at the
company would give Coke "certain rights" under their bottling
agreements. AB InBev's bottling pact with PepsiCo is set to expire
at the end of 2017. The agreement is automatically extended for
another 10 years unless either company gives written notice at
least two years before they expire.
The acquisition of SABMiller, with its big presence in Africa,
would give AB InBev a major launchpad for its beers in markets
where it has virtually no presence. Consumption in developed
markets has slowed so much that the global beer market is expected
to decline this year for the first time in 30 years, falling by
0.1%, according to industry tracker Plato Logic. The bulk of global
growth will come from Africa, which is expected to grow by 2.6%
A deal between SABMiller and AB InBev has been rumored for
years, and has been described by some analysts as the last major
piece of consolidation that remains in the beer industry. Research
firm Euromonitor has estimated that the combined company's market
share would be 29% after likely divestments, giving it a 20
percentage point lead over the next biggest brewer, Heineken
NV.
Like AB InBev, the combined brewer would be incorporated in
Belgium, the companies said.
Robey Warshaw, J.P. Morgan, Morgan Stanley, Goldman Sachs,
Linklaters and Hogan Lovells International advised SABMiller, while
Lazard, Deutsche Bank, Freshfields Bruckhaus Deringer and Cravath
Swaine & Moore advised AB InBev.
Tripp Mickle in Atlanta contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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(END) Dow Jones Newswires
October 13, 2015 10:06 ET (14:06 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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