Anheuser-Busch InBev (AB InBev) has proposed another offer to acquire SAB Miller, for £44 per share in cash. SABMiller's Board has indicated to AB Inbev that if such an offer were formally made, they would be unanimously prepared to recommend it. The shares rose by 9% in early morning trading.
AB InBev has proposed three previous cash offers for SAB - at £38, £40 and £42.15 per share, which were all rejected by SAB's Board. The latest all-cash proposal represents a c. 50% premium to SABMiller's closing share price of £29.34 on 14 September, when speculation about an approach resurfaced.
SABMiller has two major shareholders, Altria and BevCo, who between them own approximately 41% of the company. AB InBev is making a partial share alternative targeted at these two investors, which values SAB somewhat below the cash terms available to open market investors. Altria had previously said it was minded to accept an earlier, lower proposal.
Under the terms of the offer, SABMiller shareholders would be entitled to any dividends declared or paid by SABMiller, which shall not exceed USD 0.2825 per share for the period ended 30 September 2015 and a further USD 0.9375 per share for the period ended 31 March 2016 (totalling USD 1.22 per share).
AB InBev will likely have to agree to a series of divestitures to obtain regulatory approval, and have said they will work proactively with the regulators. 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, AB InBev has agreed to pay SABMiller a reverse break fee of USD 3 billion.
The offer is still preliminary at this stage. AB InBev must either announce a firm intention to make an offer for SABMiller or announce that it does not intend to make an offer by 5.00 pm on 28 October 2015.
AB InBev's takeover approach for SABMiller does not surprise us, having long been rumoured. The industry has been consolidating for many years and both AB InBev and SAB have been at the forefront of this, growing into the number one and two players, respectively. The acquisition would allow AB InBev to realise significant cost savings, and further economies of scale.
In the UK and Europe, SAB is best known for Foster's, Peroni and Grolsch, but its biggest strength lies in emerging markets. Over two thirds of sales come from these regions, with dominant local brands across Latin America, Africa and South Africa. SAB's emerging market sales are growing well ahead of sales in Europe and North America, explaining AB InBev's interest in SAB. Many of the countries in which SAB is strong, such as South Africa, Peru and Columbia, are where AB InBev is weak, which is another key attraction for the deal.
But in North America, SAB owns MillerCoors and AB InBev owns Budweiser. This complicates the merger process because AB InBev will have to agree to a series of divestitures to obtain regulatory approval, which will take some time. With MillerCoors the asset most likely to have to go, no-one will be too upset.
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