The beer-all and end-all of mergers

But AB Inbev is so confident the deal will fly, it’s ready to fork out $3bn in the event it falls through

It is a deal full of “biggests” and “evers” and “mosts”. The R1.4-trillion proposed buyout of SABMiller by Anheuser-Busch InBev, which the SABMiller board agreed to in principle this week, will create a beer behemoth that straddles the globe.

But there is far to go before this giant becomes a reality.

Already there have been outright objections, and the ratings agency Moody’s put both companies’ ratings on review on Thursday while they thrash out the details of the offer.

The companies’ awareness of the many hurdles that will need clearing is expressed by a promised “reverse break fee” of $3-billion, which AB InBev will pay to SABMiller “in the event that the transaction fails to close as a result of the failure to obtain regulatory clearances or the approval of AB InBev shareholders”.

But the fact that AB InBev is ready to pay billions if the deal fails is also arguably an expression of its confidence that it can convince competition regulators and other interested parties around the globe that the deal will benefit everyone.

In South Africa, trade union federation Cosatu and one of its affiliates, the Food and Allied Workers’ Union (Fawu), have opposed the deal.

Caution is also emerging regarding how the government might view the merger, given the public interest in a company that has long historical ties to South Africa and that, according to Reuters, paid about R16-billion in tax to the South African fiscus in 2014-2015.

In a statement, Cosatu called for the authorities to reject the deal because it could threaten the country’s tax base and workers’ jobs.

Iraj Abedian, the chief executive of Pan-African Investment and Research Services, said that, other than the initial capital inflow from the payment for shares, the deal would mean a regular capital outflow of dividends from South Africa every year.

“This is not good for South Africa’s balance of payments over t he medium to long term,” he said.

The national treasury said in a statement that when it comes to cross-border financial flows, South Africa’s legislation requires that any significant cross-border transaction be approved by the minister of finance, Nhlanhla Nene.

The treasury said it was a matter of public record that conditions were imposed on SAB when it applied in the late 1990s to re-domicile to the UK and that such conditions generally relate to the public interest, and to the South African holding company’s operations and assets or any sales proceeds.

Nene would “apply his mind to any such application, to ensure compliance with existing conditions and the impact on the South African economy”, the treasury said.

The state-owned Public Investment Corporation (PIC), SABMiller’s thirdlargest shareholder, said it would prefer all shareholders to be “treated equally” and be given AB InBev common shares that rank on an equal footing with shares currently listed in Brussels, instead of the unlisted shares currently being offered.

The PIC also said it remained resolute that the new entity should be listed on the JSE and in a way that would allow SABMiller shareholders to benefit from future growth.

As Nomura analyst Peter Attard Montalto noted, this presumed there would be a liquid, unrestricted floating of shares on the exchange.

The South African government has played an active role in opposing large mergers, most notably when grocery giant Walmart bought local retailer Massmart in 2012.

The offer that the SABMiller board provisionally accepted on Tuesday priced the firm’s shares at £44 each, along with a partial share alternative for 41% of SABMiller, which was designed specifically for its two largest shareholders, the tobacco giant Altria and Colombia’s Santo Domingo family.

The United Kingdom’s takeover panel has also extended the deadline, until October 28, by which AB InBev must announce a firm intention to