AB InBev offer is too low, says SABMiller
SABMILLER rejected AnheuserBusch (AB) InBev’s £65.2 billion (R1.35 trillion) takeover proposal as too low, putting it in conflict with its biggest shareholder, which urged the brewer to support the overture.
As with previous offers from the maker of Budweiser, this one had two tiers: AB InBev would pay £42.15 a share in cash for a majority of the stock.
The price is 44 percent above SABMiller’s closing level on September 14, the day before renewed speculation about a deal.
AB InBev proposed paying £37.49 a share in cash and stock for the stakes held by SABMiller’s two biggest shareholders, the potential acquirer said.
AB InBev’s approach, made public yesterday after two weeks of closed-door discussions, raises the stakes in the back-and- forth battle over combining the world’s two largest beer makers. A merger would create a beverage empire controlling the number one or two positions in 24 of the world’s 30 biggest beer markets, according to Exane BNP Paribas.
The deal, if it goes through, might end up being the fourth biggest acquisition of all time, according to data compiled by Bloomberg.
Pressure
“This is not, in our view, intended as AB InBev’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, with a 27 percent stake, said it supported the approach. Altria urged SABMiller’s board to engage in talks “promptly” with AB InBev.
SABMiller shares eased 0.66 percent to close at R747 on the JSE yesterday.
SABMiller, the world’s second-largest beer maker, had already rejected two proposals made privately of £38 a share and £40 a share, AB InBev said.
Under UK takeover law, Belgium-based AB InBev has until next Wednesday to make a formal offer or it must walk away, and if it doesn’t bid, it cannot renew its takeover effort for six months.
SABMiller’s board, excluding representatives of Altria, said in a statement yesterday that the proposal “substantially undervalues” the brewer.
“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 Carlos Brito said in a conference call.
SABMiller could 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 yesterday, while the firm was still reviewing the proposal.
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. – Bloomberg
IF brewing giant Anheuser-Busch (AB) InBev buys SABMiller, it will probably force its centralised, standardised operating model on a business known for regional independence.
A culture clash is common in any merger. In this case, SAB’s integration into AB InBev may mean an end to worldwide partnerships and equity stakes.
The combined company may also adopt a structure that suits a focus on global brands like AB InBev’s Budweiser and Corona, whereas SAB historically nurtured local brews like Castle in South Africa and Aguila in Colombia.
More profitable
Yet with AB InBev being much more profitable than SAB or other brewers, investors are unlikely to mind.
“Investors recognise two organisations have different cultures but, really, they’re concerned about sustainable earnings growth,” said analyst Trevor Stirling of Bernstein Research. “There is not much sentimentality when it comes to these things.”
Bernstein estimates cost savings from the deal could mean a 7.5 to 12.5 percentage point benefit to margins. AB InBev had a profit margin of 39.4 percent last year, versus SABMiller’s 29.5 percent.
“SAB’s operating ethos was very decentralised,” said a former SAB executive.
Managers under former chief executive Graham Mackay were encouraged to use their own initiative and judgment, he said. Mackay led SAB’s international expansion with deals over two decades. He died in 2013.
Big brewers have been cutting costs as sales slow in many markets because of faltering economies and competition from craft beers and cocktails – a trend that led SAB to move towards consolidated procurement. But the company has tried to stay decentralised.
They’ll have no compunction at throwing over this rather delicate culture for the financially driven
“I think (AB InBev chief executive) Carlos Brito will come in and rightly recognise the huge amount of additional cost that’s been layered into the business to try to protect that local culture,” said the executive, speaking on condition of anonymity.
“They’ll have no compunction at all about throwing over this rather delicate operational culture for something that’s more financially driven.”
Brito runs Belgiumbased AB InBev from New York with a legendary zeal for cost-cutting and performance analytics inherited from his mentors, the billionaire founders of private equity firm 3G Capital, among the group of insiders who collectively own about 52 percent of the company.
“You’re always running, close to a limit. You’re working hard and being evaluated all the time,” said 3G founder Jorge Paulo Lemann to Fortune Magazine in 2013 about the 3G culture. “People either like it or don’t like it.”
The two companies, both of which declined to comment, revealed last month that AB InBev had approached SAB about a combination. Under UK takeover rules, the company has until October 14 to make a firm offer.
MegaBrew
A combined AB InBev and SABMiller, dubbed “MegaBrew” by analysts, would make nearly one out of three beers drunk globally. Its US share will touch 70 percent, so any deal will probably lead to the disposal of SAB’s 58 percent stake in the US joint venture it has with Molson Coors.
Many analysts also expect MegaBrew to unwind SAB’s stake in its joint venture with China Resources, even if not required to.
Analysts note that where previous deals by AB InBev have been mostly about consolidation and cost-savings, SAB is about expansion.
“AB InBev does big global deals, which is probably smart because they have big global brands, and that’s how you leverage those brands,” said Harry Schuhmacher of Beer Business Daily. “Their ultimate goal is to have a Coca-Cola of the beer industry.” – Reuters