AFTER SABMILLER’S REBUFF

Doubling the amount of planned cost reductions to stave off hostile takeover

SABMILLER doubled the amount of planned cost reductions as it began meetings with shareholders to rally them around its rebuff of AnheuserBusch (AB) InBev, the larger rival seeking to buy it for a record £65.2 billion (R1.28 trillion).

Annual savings in the 12 months to March should exceed $430 million (R5.7bn) and reach $1.05bn by 2020, the brewer said on Friday in a statement. The company previously targeted about $500m in annual savings by 2018.

The onus is on SABMiller to prove that it is worth more after saying AB InBev’s proposal “substantially undervalues” the brewer. Under UK rules, AB InBev has until Wednesday to make a formal offer.

Under pressure

Altria Group, SABMiller’s largest shareholder with a 27 percent stake, has urged the board to begin talks with AB InBev, which on Thursday criticised the target company for its refusal to engage.

“Clearly it makes a lot of sense as part of SABMiller’s bid defence,” Sanford C Bernstein analyst Trevor Stirling said of expense cuts. “They’re saying they can drive out cost savings as well as AB InBev can to reassure shareholders that there’s no need to sell.”

The new savings would come mostly from procurement and also from making manufacturing and distribution more efficient, the company said, adding that the plan assumed that there was no change of ownership.

AB InBev’s proposal to pay cash for a majority of the shares was 44 percent above where SABMiller was trading before speculation of a deal.

“Our recent trading statement highlighted our accelerating growth in the second quarter,” chief executive Alan Clark said. “Another key plank of our strategy is to build a globally integrated organisation to optimise resource, win in market and reduce costs.”

Similar tactics have failed in the past to fend off AB InBev chief executive Carlos Brito. In July 2008, when Budweiser maker Anheuser-Busch sought to block Brito’s InBev from a hostile takeover, its chief executive August Busch IV appealed to shareholders by proposing cutting $1bn in expenses. The brewer, which had been managed by the Anheuser and Busch families since 1852, was acquired by InBev to form Anheuser-Busch InBev in November that year.

Clark said SABMiller had a 38 percent profit margin in its biggest 20 markets. AB InBev’s profit margin stood at 39.4 percent last year. – Bloomberg