By Saabira Chaudhuri
LONDON--Anheuser-Busch InBev NV turned the heat up on SABMiller
PLC, going public with an offer valued as high as GBP68.24 billion
(about $104 billion) for its London-listed rival, in a bid to
combine the world's No. 1 and No. 2 brewers.
AB InBev said it has proposed a cash price of GBP42.15 a share,
with a so-called partial-share alternative aimed at pleasing
SABMiller's largest shareholders. It said early Wednesday that the
latest proposal is the third it has made to SABMiller's board.
AB InBev said SABMiller had rejected its two previous proposals.
In a separate release Wednesday, SABMiller's biggest shareholder,
U.S. tobacco giant Altria Group Inc., said it supports the current
offer, including the share alternative, and recommended that
SABMiller's management engage "promptly and constructively" in
talks.
The cash proposal represents a premium of approximately 44% to
SABMiller's closing share price of GBP29.34 on Sept. 14, the day
before SABMiller shares started climbing amid speculation about an
approach from AB InBev.
AB InBev said the "share alternative"--essentially a less
valuable offer of cash and shares--would be available for 41% of
SABMiller shares outstanding. That corresponds to the amount held
by Altria and the Santo Domingo family. That separate offer values
each SABMiller share at GBP37.49, or a 28% premium, but offers tax
advantages to Altria and Santo Domingo.
The deal's structure has been a key point in negotiations. If
SABMiller agrees to the offer, and Altria and the Santo Domingo
family elect to accept the lower cash and stock offer, AB InBev
will end up paying GBP65.14 billion for SABMiller.
SABMiller shares were up 3.2% at GBP37.40 on Wednesday morning,
valuing the company at GBP60.55 billion.
AB InBev said it has made two prior written proposals in private
to SABMiller, the first for GBP38 a share in cash and the second
for GBP40 in cash.
"AB InBev is disappointed that the board of SABMiller has
rejected both of these prior approaches without any meaningful
engagement," said the brewer in a statement. "AB InBev believes
that the revised cash proposal of GBP42.15 per share is at a level
that the board of SABMiller should recommend."
SABMiller fired back with its own statement saying after
reviewing a "highly conditional" GBP40 per-share proposal made by
AB InBev on Sept. 22, which included a partial stock offer of
GBP35.59 per-share valuing SABMiller at GBP62 billion, it
"unanimously concluded that it very substantially undervalues
SABMiller, its unique and unmatched footprint, and its stand-alone
prospects" and that the board therefore "unanimously rejected" the
proposal.
It said AB InBev then contacted it again on Monday, putting
across the same proposal again. It said at that meeting AB InBev
indicated the possibility of increasing its offer to GBP65 billion,
with a raised all-cash price of GBP42 a share alongside the partial
stock alternative. SABMiller said it again rejected the GBP40
proposal and said that, the board--excluding the directors
nominated by Altria--concluded that even if AB InBev formalized the
GBP42 a share proposal, it would reject this as it "still very
substantially undervalues SABMiller."
SABMiller added that AB InBev had timed the approach to take
advantage of SABMiller's recently depressed share price, that the
structure of the proposals discriminates against some SABMiller
shareholders, and that AB InBev hasn't offered it comfort on the
significant regulatory hurdles in the U.S. and China.
AB InBev Chief Executive Carlos Brito on a call with analysts
said of the GBP42 per-share offer "that was never an offer it was
just testing grounds." He added: "We were never very excited to
engage at that price and we decided to go public."
Wednesday's statement marks a change in tone by AB InBev, which
when talks were first disclosed said its "intention is to work with
SABMiller's board toward a recommended transaction."
AB InBev said it is seeking SABMiller's board's recommendation
for the full cash part of the offer, but isn't looking for board's
approval for the partial-share alternative, which is aimed at
Altria and the Santo Domingo family. Representatives of AB InBev
didn't respond to requests for further comment.
Under U.K. takeover rules, AB InBev has until 5 p.m. on Oct. 14
to announce a "firm intention" to make an offer for SABMiller and
specify the details of the offer. Wednesday's proposal doesn't
constitute a firm intention to make an offer, said AB InBev,
cautioning that there is no certainty that a firm offer will be
made.
Altria in its own statement said it supports a deal with AB
InBev at GBP42.15 "or higher," with the partial-share alternative,
saying this "would create significant value for all SABMiller
shareholders." The company said it would be prepared to elect the
partial-share alternative.
A tie-up between the two beer companies would bring household
brands such as Budweiser, Corona and Stella Artois together with
Pilsner Urquell, Grolsch and Peroni, and give the combined company
a major presence in the U.S., China, Europe, Africa and Latin
America. Together, AB InBev and SABMiller sell more than 30% of the
world's beer volume.
Combined, the two companies would generate revenue of $64
billion and earnings before interest, taxes, depreciation and
amortization of $24 billion.
Because of the global reach of AB InBev and SABMiller, they will
likely have to seek antitrust clearance from jurisdictions around
the world, a process that could easily take a year.
The biggest regulatory hurdle is in the crucial U.S. market,
where AB InBev already has a roughly 45% market share and
U.K.-based SABMiller controls a further 25% through its MillerCoors
LLC joint venture. Another potential regulatory headache is China,
where AB InBev had an estimated 14% volume market share last year,
according to Euromonitor. Chinese authorities could require the
brewer to exit SABMiller's joint venture with China Resources
Enterprise Ltd., which has 23% of the market and produces the
top-selling Snow brand.
In Wednesday's statement, AB InBev said it is "committed to
working proactively with regulators," and said in the U.S. and
China in particular it would "seek to resolve any regulatory or
contractual considerations promptly and proactively."
"We've done a lot of homework to get to this point, we've been
thinking about this for a long time," said Mr. Brito on the call
with analysts.
AB InBev said it would establish a secondary listing on the
Johannesburg stock exchange and have a local board there.
Such a deal has been rumored for years, and has been described
by some analysts as the last major piece of consolidation that
remains in the beer industry. Research firm Euromonitor has
estimated that the combined company's market share would be 29%
after the deal after likely divestments, giving it a
20-percentage-point lead over the next biggest brewer, Heineken
NV.
SABMiller on Tuesday brought forward a trading statement
originally slated for Oct. 15, a move that was intended to give its
shareholders information ahead of a formal proposal being made by
AB InBev.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 07, 2015 05:57 ET (09:57 GMT)
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