SABMiller Rejects Increased Bid From Anheuser-Busch

October 10, 2015

The second-biggest brewer in the world, SABMiller, is coming under pressure over a takeover sought by its larger rival, even as it spurned the most recent approach as one that “still very substantially undervalues” the company.

On Wednesday, its suitor, Anheuser-Busch InBev, said that it was now willing to pay about $104 billion for SABMiller.

By publicly airing its latest informal offer, Anheuser-Busch InBev is hoping to delicately maneuver its longtime rival into what would be the biggest beer merger in history. A deal would give the maker of Budweiser and Stella Artois important footholds in Africa and Latin America, two big markets where the growth of major beer brands has proved strong.

The move comes as a deadline for the deal looms. Under British takeover rules, Anheuser-Busch InBev must make a formal offer by Oct. 14 or walk away for six months, in what the deal-making industry calls the “put-up-or-shut-up” mandate. If the beer giant wants to avoid waging a potentially costly hostile bid or dropping its pursuit for now, it must entice its reluctant rival to enter merger talks by then.

Yet in what may prove a strategically crucial move, Anheuser-Busch InBev also offered an alternative to try to win over SABMiller’s two biggest shareholders — the American tobacco company Altria, and the Santo Domingo family of Colombia, one of that country’s wealthiest dynasties — who would face huge tax bills if they sold their holdings.

Altria, which owns 27 percent of SABMiller, said on Wednesday that it would be willing to support the latest approach, which includes an option for Altria and the Santo Domingos to accept part of the offer in restricted shares, instead of cash.

But Anheuser-Busch said that it “does not currently have the support” of the Santo Domingo family, whose BevCo owns 14 percent.

That puts the Colombian family, which gained its shares by selling its own brewer to SABMiller a decade ago, in an unusually prominent role in the negotiations. The very structure of Anheuser-Busch InBev’s most recent bid was put together with the Santo Domingos’ potential interests in mind, since the clan’s holdings in SABMiller have roughly quadrupled in value since that deal, to about $12.5 billion.

“The partial share alternative was designed with and for them,” Carlos Brito, Anheuser-Busch InBev’s chief executive, said of the family on a conference call on Wednesday. “There’s no transaction without them.”

Anheuser-Busch InBev said that SABMiller’s board of directors had rejected two other proposals that had not previously been publicized.

SABMiller’s board, excluding directors nominated by Altria, rejected the latest proposal, saying in a news release that the revised bid “still very substantially undervalues SABMiller, its unique and unmatched footprint, and its stand-alone prospects.”

“SABMiller is the crown jewel of the global brewing industry, uniquely positioned to continue to generate decades of stand-alone future volume and value growth for all SABMiller shareholders from highly attractive markets,” Jan du Plessis, the SABMiller chairman, said in a news release.

“AB InBev is disappointed that the board of SABMiller has rejected both of these prior approaches without any meaningful engagement,” the company said in a news release on Wednesday.

SABMiller said that Anheuser-Busch InBev had broached the idea of making an offer of 42 pounds, or $64, a share, beside the share alternative, at a meeting on Monday.

The deal, if it goes through, would create a combined company with $64 billion in annual revenue that commands 30 percent of global beer sales, according to the research firm Euromonitor International.

It also would bring some of the world’s most popular beers under one roof, including Anheuser-Busch InBev’s Budweiser, Corona and Stella Artois, and SABMiller’s Miller Lite, Peroni Nastro Azzurro and Grolsch.

“Put simply, we believe we can achieve more together than each of us could separately, bringing more beers to more people and enhancing value for all of our stakeholders,” Mr. Brito of Anheuser-Busch InBev said in a news release.

Under the terms of the latest bid, Anheuser-Busch InBev said it would be willing to pay £42.15, or about $63.97, a share in cash for SABMiller, a 16 percent premium to the closing price in London on Tuesday. That is also a 44 percent premium to the closing price in mid-September, before Anheuser-Busch InBev confirmed it had approached SABMiller about a possible combination.

As an alternative for the two big SABMiller shareholders, Anheuser-Busch InBev said it would offer shares. That would consist of a restricted class of up to 326 million Anheuser-Busch InBev shares, which would be unlisted and convertible into regular Anheuser-Busch InBev shares after a five-year lockup period, Anheuser-Busch InBev said.

The share alternative, which would consist of up to 41 percent of SABMiller’s shares, would value those shares at £37.49 each.

Any deal between the brewing giants would most likely face significant regulatory scrutiny, given the breadth of their combined beer brands and their dominance in the United States and other countries.

On Wednesday, Anheuser-Busch InBev said that it believed the geographic footprints of the two companies were largely complementary and that it would work with regulators “in seeking to bring all potential regulatory reviews to a timely and appropriate resolution.”

“In the U.S. and China, in particular, the company would seek to resolve any regulatory or contractual considerations promptly and proactively,” Anheuser-Busch InBev said.

To win approval from the Justice Department in the United States and from regulators in Europe and China, the companies would almost certainly have to sell some brands or assets, possibly including SABMiller’s 58 percent stake in its Miller Coors joint venture with the Molson Coors Brewing Company in the United States, and its share of the CR Snow joint venture that owns Snow, China’s best-selling beer brand.

SABMiller Rejects Increased Bid From Anheuser-Busch