AB InBev Raises Offer for SABMiller -- 7th Update
26 July 2016 - 11:13PM
Dow Jones News
By Saabira Chaudhuri
LONDON-- Anheuser-Busch InBev NV and SABMiller PLC are back at
the negotiating table.
AB InBev on Tuesday raised its offer for London-based SABMiller
in their proposed $100 billion-plus beer megamerger, seeking to
allay investor concern following a sharp fall in the value of the
British pound. Sterling plunged after the U.K. vote to leave the
European Union last month, upending the economics of the complex
deal for some SABMiller shareholders.
The Belgian-based brewer said it would now pay GBP45 a share for
its rival, valuing SABMiller at about GBP79 billion ($103.81
billion), up from its previous offer of GBP44 a share, or about
GBP71 billion. The new terms show the deep decline in the pound:
The original offer was worth about $108 billion at November's
exchange rates.
AB InBev, the world's largest brewer, said the sweetened offer
was its final one. SABMiller, in its own statement, said it has
hired Centerview Partners to give it financial advice following the
recent currency volatility, and that its board would consult with
shareholders and meet to formally review the offer. It said the
chairmen of both brewers held talks on Friday, but they didn't
discuss the terms of a new deal.
The deal, formally announced in November, was expected to close
in the latter half of this year. The 11th-hour renegotiations come
after both companies spent months winning regulatory approval for
the megamerger, agreeing to sell big chunks of their business in
the process. That all raises the stakes for both to reach a new
deal.
Still, some big SABMiller shareholders are already digging in
their heels. Aberdeen Asset Management, one of SABMiller's major
investors, said the new offer still undervalues the company.
"The revised deal remains unacceptable," the investment firm
said, "as it both undervalues the company and continues to favor
SABMiller's two major shareholders." It said that in the absence of
a better offer, it was content to stay a shareholder in SABMiller
as a standalone firm. Aberdeen owns 0.6% of SABMiller, according to
FactSet.
Bernstein estimates that the increased offer represents an 8%
premium to the "fair value" of SABMiller. That is up from 6% before
the increased offer but is still sharply below the roughly 33%
premium when AB InBev's approach was first announced in October,
the firm noted.
In afternoon trading Tuesday, SABMiller shares were down 0.6% to
GBP44.14 in London after an earlier modest rise. AB InBev shares
were up 1.1% to EUR116.05 ($127.43) in Brussels.
Hedge funds including Elliott Management Corp. and TCI Fund
Management Ltd. have built stakes in SABMiller in recent days and
have been agitating for a higher offer, according to a person
familiar with the matter.
For 41.6% of stock, AB InBev created a partial-share
alternative, essentially a combination of cash and unlisted stock,
designed to allow its two largest shareholders, Altria Group Inc.
and the Santo Domingo family's BevCo Ltd. investment vehicle, to
retain holdings and board seats.
The brewer has now revised the alternative's terms, offering
0.483969 restricted shares and GBP4.6588 in cash. The revised
partial-share alternative values each SABMiller share at GBP51.14,
based on its closing share price Monday.
The alternative--which includes a condition that shares be held
for five years, hence making it unattractive for most
investors--had previously translated into a lower per-share price
of GBP41.85.
RBC analyst James Edwardes Jones said he had "already felt that
ABI was paying a full price" and that the latest deal is even more
expensive. AB InBev said it put in place currency hedges for GBP45
billion at an average rate of $1.53 to the pound before the
post-Brexit slump. The pound has since swooned to $1.31, but AB
InBev doesn't benefit from that weakness.
If the merger falls apart, AB InBev has committed to paying
SABMiller a $3 billion breakup fee.
AB InBev's stock trades in euros, making its shares more
valuable than the cash offer following the pound's decline and
increasing the likelihood that other shareholders besides Altria
and the Santo Domingo family would opt for the more valuable
alternative. The alternative was designed to help AB InBev's
largest shareholders with taxation and potential accounting issues,
key to securing their backing for the deal. If other investors
choose to opt for the partial-share alternative, Altria could lose
its two seats on the combined company's board, and some analysts
have said the tobacco company might lose its ability to record
income from the beer business.
The two brewing giants agreed to their merger last November and
the deal is expected to close in the second half of this year. The
deal has already been approved by competition authorities in the
U.S., the European Union, South Africa and several other
jurisdictions, leaving Chinese approval the last big antitrust
hurdle to the combination.
The deal is critical to AB InBev's growth. Buying SABMiller
allows AB InBev to reduce its reliance on the U.S., where it has
had trouble getting younger people to drink more Budweiser, and
gives it access to the growing African market, which is expected to
drive beer-industry sales.
Ian Walker contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
July 26, 2016 08:58 ET (12:58 GMT)
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