Devil in the detail of megadeal
AB InBev-SABMiller merger a complex process
AFTER he had presented SABMiller’s half-year results to journalists on a conference call yesterday, SABMiller CEO Alan Clark was without answers to several of the questions.
Predictably, many had to do with Anheuser-Busch InBev’s (AB InBev’s) $107bn proposal to buy SABMiller, an offer both companies’ boards have now approved and that this week was finally made formally. AB InBev published the required documentation, setting out the details in more than 100 pages.
We now have more information on the structure of the deal and the synergies AB InBev expects to extract.
What we don’t have — and Mr Clark doesn’t have either — are details such as who will go and who will stay and how the new and as-yet-unnamed merged entity will operate, which will certainly be very different to the way SABMiller operates now.
With the deal expected to close only in the second half of next year, the folk at SABMiller face a long stretch in which they will have to continue treating AB InBev as a competitor and may not know what their futures will look like for a good while. Staying motivated will doubtless be quiet a challenge, even though AB InBev CEO Carlos Brito was most complimentary this week about the respect his company has for SABMiller’s management team and its achievements and expertise.
And so he should be, was the implicit message yesterday from Mr Clark, who pointed out that assuming the deal closes next year, at the £44 cash offer price, SABMiller will have delivered a total return to shareholders of 1,600% in dollar terms and more than 3,200% in rand terms since it listed in London 16 years ago and began in earnest to expand across the globe.
The SABMiller board has extracted an extremely good deal for shareholders and can hardly be faulted for recommending the offer, however wistful South Africans will be to see such an iconic company disappear as an independent entity.
However difficult it will be for the company’s people — given that the AB InBev culture is rather different and leaner and meaner than SABMiller’s — it is hard to imagine that the merged entity will deliver more than $2bn of promised cost synergies without quite a lot of pain. How much that will affect SA and the rest of Africa at this stage is not clear.
The tabling of the formal offer this week is a welcome step forward in the process to create a company that will not only be responsible for one out of every three beers sold in the world, but will also be the world’s largest consumer goods company measured by profits, ahead of the likes of Nestlé and Coca-Cola.
It will also become by far the largest company listed on the JSE when measured by market value.
The secondary listing on the JSE is welcome, indeed essential for South African investors — our regulators and investors would surely have settled for nothing less. And it is a bit of a coup for the JSE
R70bn or more could flow in when SA needs inflows. But the pattern is bound to be complicated and uncertain
given that the London Stock Exchange, by contrast, will be losing SABMiller to Brussels, which will be the primary listing of the merged entity.
And domestic investors will not have to wait until the deal has been concluded. AB InBev itself will seek a secondary inward listing on the JSE as soon as possible and the JSE’s new fast-track provision could make that possible in a matter of weeks. That will be a plus for domestic investors and crucial in terms of smoothing the foreign exchange flows that will arise out of the deal and their possible effect on the rand.
Analysts are talking about R70bn or more that could flow into SA as a result of the deal, which could be useful at a time when SA needs inflows. But the pattern of flows is bound to be complicated and uncertain and the South African Reserve Bank would do well to manage those flows cautiously. This deal is going to be a long, complex and difficult process.