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Bottles of Bud Light and Miller Lite made by AB InBev and SABMiller

AB InBev Increases SABMiller Offer After Pound’s Brexit Plunge

July 26, 2016
The new deal is worth 2.3% more than AB InBev’s previous offer, but some minority shareholders say it undervalues the company and doesn’t treat everybody equally.

Anheuser-Busch InBev NV raised its cash bid for British brewer SABMiller Plc by 2.3% to account for the pound’s plunge, while maintaining a deal structure that gives the target’s two biggest shareholders a sweeter deal.

SABMiller shareholders will receive 45 pounds ($59.23) a share in cash, 1 pound ($1.32) more than the prior offer, valuing the company at 79 billion pounds ($103.98 billion), AB InBev said in a statement Tuesday. The bidder also increased the amount of cash in a cash-and-stock alternative that it crafted for the two largest investors, Altria Group Inc. and Bevco Ltd.

Another SABMiller holder, Aberdeen Asset Management, said the revised proposal undervalues the company and remains unacceptable because stockholders aren’t being treated equally.

Investors including Aberdeen, Elliott Management and Davidson Kempner Capital Management had raised concern with SABMiller about the deal in the wake of the pound’s plunge. SABMiller chairman Jan du Plessis spoke with AB InBev chairman Olivier Goudet on July 22 about its offer, SABMiller said in a separate statement. That conversation came the day after SABMiller’s annual meeting, at which du Plessis said he would wait until Chinese regulators approved the takeover before weighing its terms.

“It’s clearly designed by ABI to bring matters to a head, and rather than let a groundswell of agitation build up, they’re saying ‘This is it, like it or lump it,’” Sanford C. Bernstein analyst Trevor Stirling said. “It’s put up or shut up.”

The pound’s plunge, after the U.K. voted last month to leave the European Union, made the deal less attractive in two ways.

First, SABMiller investors based in the U.S., who hold about 20% of the company’s floated shares, will get less of a payoff than they expected in dollar terms if the pound remains near its recent low against the U.S. currency when the deal closes.

Also, the drop in sterling sparked a surge in U.K. consumer stocks that sell globally, because those companies will get a big earnings boost when converting international sales into their devalued home currency. But SABMiller shares didn’t participate in that rally because no matter how high valuations go in the industry, the 44-pound-cash price ($57.91) capped the gains.

AB InBev’s higher offer didn’t address the disparity between the value of the cash bid and the cash-and-stock alternative. The Leuven, Belgium-based company designed the alternative offer as a way to reduce taxes for Altria and Bevco. When announced, it was valued at 39 pounds ($51.33) a share, a discount to the cash proposal, and it includes a clause requiring the investors to hold their shares for five years. Both features made the alternative unattractive to investors other than Altria and Bevco.

With the plunge in the pound and the rise in AB InBev’s stock, the value of the alternative has soared above 51 pounds ($67.13) a share, meaning the two big shareholders get a better deal than those taking the cash offer. AB InBev, in its statement, noted that that valuation should be discounted to reflect the fact that the stock can’t be sold for five years.

Investors who opt for the cash-and-stock alternative now will receive about 4.66 pounds in cash compared with 3.78 pounds previously ($6.13 compared with $4.99), with the balance in shares. Its revised offer is final, the Belgian company said.

“The revised deal remains unacceptable as it both undervalues the company and continues to favor SABMiller’s two major shareholders,” Aberdeen said in the statement. “In the absence of an improved, offer we would be more than happy to remain committed long-term shareholders in SABMiller.”

SABMiller also said it hired Centerview Partners last week for financial advice, joining a cadre of advisers that includes Robey Warshaw, JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs & Co. SABMiller’s board had unanimously recommended the previous offer from the maker of Budweiser beer, in what would be the industry’s biggest deal.

“Some of these activist positions would have been taken a few weeks ago, so from an opportunistic point of view, the increase is already a juicy return,” Javier Gonzalez Lastra, an analyst at Berenberg, said by phone. “The question is whether they think they will be able to extract more from ABI. It’s a negotiation, at the end of the day.”

SABMiller said its board will study the new offer and comment thereafter.

By Thomas Buckley and Sam Chambers

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Licensed content from Bloomberg, copyright 2016.

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