By Eyk Henning and Tripp Mickle
As SABMiller PLC's shareholders have started voting on a $100
billion-plus deal to be acquired by rival Anheuser-Busch InBev NV,
some investors and bankers are warning a group of hedge funds that
they could unintentionally jeopardize the deal.
To close the transaction, SABMiller needs support from 75% of
the shares voted, and only a small minority of shareholders plan to
vote against the deal, which they believe undervalues the
U.K.-based brewer.
But because a significant portion of shareholders has been
excluded from the vote, a relatively minor faction would be in a
position to block one of the largest corporate takeovers in
history.
That has led financial advisers and solicitors to press hedge
funds in recent days to take steps to vote in favor of the deal,
according to people familiar with the matter.
Hedge funds including Paul Singer's Elliott Management Corp.,
TCI Fund Management Ltd. and Davidson Kempner Capital Management
LLC control roughly 20% of SABMiller shares through derivatives and
stock options. Those don't have voting rights.
To convert their options and derivatives into voting shares,
these funds would have to pay a 0.5% tax, or a total of about GBP73
million ($95 million) combined, based on SABMiller's current share
price. The hedge funds are unlikely to want to spend the money if
the vote can pass without them, according to financial advisers
involved in the deal.
Elliott, Davidson Kempner and TCI declined to comment.
A U.K. court decided that SABMiller's two largest shareholders
-- Colombia's Santo Domingo family and tobacco giant Altria Group
Inc. -- wouldn't have a say on the deal because they are getting a
separate cash-and share offer. This means shareholders owning the
remaining 60% of SABMiller will determine the outcome of the
vote.
If more than a fourth of them -- amounting for just 15% of
overall SABMiller shares -- vote against the transaction, this
would be enough to kill the deal, according to an analysis by
Stifel Nicolaus & Co.
And if hedge funds choose to stay on the sidelines, only 40% of
SABMiller shareholders would get to vote on the deal -- meaning
that only 10% of shareholders could effectively block the
acquisition.
Votes by proxy are due by Sept. 26. Votes can also be cast at
SABMiller's general meeting on Sept. 28. AB InBev will hold a
shareholder meeting the same day, but its vote's outcome isn't in
question.
Bankers advising SABMiller and AB InBev are monitoring the
situation, but remain confident the deal will get approved,
according to people familiar with the matter.
Part of the reason for that confidence is that many of
SABMiller's large shareholders, like BlackRock Investment
Management (UK) Ltd. and State Street Global Advisors Ltd., also
own stakes in other brewers, like AB InBev and Molson Coors Brewing
Co., according to FactSet data.
That raises the likelihood they will vote in favor of the deal,
because AB InBev and Molson Coors are due to acquire SABMiller
assets. The BlackRock and State Street funds combined own roughly
2.8% of SABMiller shares, according to FactSet.
Voting against the deal "would be the equivalent of shooting
yourself in the foot," said Stifel analyst Mark Swartzberg.
Still, the hedge funds' reluctance introduces uncertainty into
what appeared to be an easy vote after shareholder advisory firms
Institutional Shareholder Services Inc. and Glass, Lewis & Co.
this month recommended shareholders vote in favor of a transaction
that SABMiller's board unanimously supports.
"I am annoyed with fellow hedge funds because they're supposed
to control risks instead of creating them," said a hedge-fund
manager who preferred to remain anonymous. He added he would
convert his derivatives by the middle of the week. The deadline is
Thursday.
AB InBev and SABMiller declined to comment.
At least two major shareholders, including Aberdeen Asset
Management PLC, are opposed to the deal. Vontobel Asset Management
is also expected to vote against it, according to people familiar
with the matter. They believe AB InBev's offer undervalues the
company. Collectively, Aberdeen and Vontobel own about 2% of
SABMiller.
AB InBev continues to move ahead with its integration plans. The
company last week announced it is centralizing SABMiller's Africa
operations, creating four business units to manage operations
across 17 countries.
The deal is critical to the Belgian-based brewer's future.
Taking over SABMiller reduces AB InBev's reliance on the U.S.,
where sales volumes of Budweiser have been declining for decades,
and gives it access to a growing African market that is expected to
drive beer-industry volume over the next decade.
--Laurence Fletcher contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com and Tripp Mickle at
Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
September 20, 2016 13:16 ET (17:16 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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