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Beer Deal Takes a Spill as Stockholders Rebel

July 27, 2016
What looked like a done deal just weeks ago has morphed into a battle pitting AB InBev against SABMiller investors who oppose pre-Brexit terms.

AB InBev’s $103.6 billion takeover bid for SABMiller Plc was thrown into disarray after the target company suspended integration of the two brewers following a rebellion from shareholders who say they haven’t been compensated enough for the pound’s recent plunge.

SABMiller managers asked employees to halt work knitting together the two companies, with Chief Executive Officer Alan Clark saying in an internal memo that “there should be no contact with AB InBev with immediate effect.” Advisers continue to work on the transaction, and SABMiller’s board hasn’t decided to walk away from the deal as it reviews an improved offer from AB InBev, people familiar with the matter said. The brewers declined to comment on the memo reviewed by Bloomberg News.

What looked like a done deal just weeks ago has morphed into a battle pitting the world’s biggest brewer against SAB investors who oppose terms they say withered since the U.K. voted last month to leave the European Union. While AB InBev nudged up its bid Tuesday, some shareholders remain opposed--raising further questions over completion of an industry-transforming transaction affecting companies from the U.S. to Africa to Asia.

“It suggests that they think that the risk is real that shareholders won’t approve this,” said Philip Gorham, an analyst at Morningstar Inc. “We don’t know at this stage if the deal will close. It’s an unexpected wrinkle.”

According to the memo, so-called convergence planning is on hold, and all meetings and calls between the companies should be postponed until further notice while management reviews the latest proposal. According to the memo, the same applies to contact with representatives of Asahi Group Holdings Ltd. and Molson Coors Brewing Co., both of which are buying assets from the brewers as part of the deal.

Two-Pronged Plan

At the heart of the confrontation is a complex two-pronged takeover proposal designed to please both small and institutional investors as well as SAB’s two biggest stakeholders, Altria Group Inc. and Bevco Ltd. Those two parties were granted a cash-and-stock option, whose value has soared from 39 pounds when the deal was announced last year to about 50 pounds, while the all-cash bid hasn’t benefited as much.

AB InBev sought to address the mismatch on Tuesday by raising the cash bid to 45 pounds a share, 1 pound more than the prior offer. It also increased the amount of cash in a cash-and-stock alternative.

Still, some shareholders remain on collision course. SABMiller holder Aberdeen Asset Management said even the revised proposal undervalues the company and is unacceptable because stockholders are receiving different treatment. All told, the bid is valued at 79 billion pounds, making it the biggest takeover approach in the brewing industry.

AB InBev’s bid has already received regulatory clearance from South Africa and the U.S. in recent weeks. Part of the approval process includes a complex set of divestments around the globe to appease regulatory concern. Molson Coors is set to acquire SABMiller’s stake in the MillerCoors brewing venture and is still awaiting approval from Chinese regulators.

Molson Shares

The revelation of the suspended integration sent Molson down as much as 8.9% in U.S. trading. Both AB InBev and SABMiller had closed in Europe when the memo become public. SABMiller’s American depository receipts fell as much as 4.6 percent.

SABMiller said Tuesday that its board would consult shareholders about AB InBev’s new offer and make an announcement thereafter. Altria and Molson Coors declined to comment.

The deal to merge SABMiller and AB InBev, termed “Megabrew” by analysts, would create a behemoth controlling about half of the industry’s profits. The combined company will have the No. 1 or No. 2 positions in almost all of the world’s biggest beer markets, and provide AB InBev its first toehold in Africa, where about 65 million people are due to reach the legal drinking age by 2023.

The U.K.’s decision to leave the European Union, following a popular referendum last month, has sent shock waves through the European corporate landscape.

Companies ranging from Siemens AG to luxury-goods maker Burberry Plc have put future investments under review, and consumer-facing corporations including low-cost airline EasyJet Plc have said the vote has increased uncertainty as the U.K. embarks on the arduous process of uncoupling from decades of political and economic entanglement with the European bureaucracy.

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