MO Altria Group Inc

By Saabira Chaudhuri 

LONDON-- SABMiller PLC rejected a takeover proposal from Anheuser-Busch InBev NV on Wednesday that valued it as high as GBP68.24 billion ($103.88 billion), the latest salvo in what is quickly becoming a tense negotiation between the world's No. 1 and No. 2 brewers.

The tensions extend to SABMiller's two largest shareholders, U.S. tobacco company Altria Group Inc. and the Santo Domingo family of Colombia. Altria, which holds a stake of more than 25%, said it would support a deal at or above AB InBev's proposed price. The Santo Domingos' BevCo Ltd. investment vehicle, with about 15%, joined with the rest of the SABMiller board in rejecting the proposal.

AB InBev said it had proposed a cash price of GBP42.15 a share, with a so-called partial-share alternative aimed at pleasing SABMiller's largest shareholders. The latest proposal was the third it has made to SABMiller's board, which rejected the earlier two, each company said.

SABMiller said its 16-member board, excluding the three directors nominated by Altria "unanimously rejected" the GBP42.15 proposal "as it still very substantially undervalues SABMiller, its unique and unmatched footprint, and its stand-alone prospects."

In a separate release Wednesday, Altria said it supports the current proposal, including the share alternative, and recommended that SABMiller's management engages "promptly and constructively" in talks.

The cash proposal represented a premium of about 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 had 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 valued each SABMiller share at GBP37.49, or a 28% premium, but offers tax advantages to Altria and the Santo Domingos.

The deal's structure has been a key point in negotiations. If SABMiller had agreed to the proposal, and Altria and the Santo Domingo family elected to accept the lower cash-and-stock proposal, AB InBev would have ended up paying GBP65.14 billion for SABMiller. BevCo didn't immediately respond to a request for comment.

SABMiller shares were up 0.8% at GBP36.49 on Wednesday afternoon, having risen as much as 4.4% earlier.

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, on Monday, for GBP40 in cash. SABMiller said AB InBev on Monday also indicated the possibility of a raised all-cash price of GBP42 a share alongside the partial stock alternative. SABMiller said its board--excluding the directors nominated by Altria--concluded that even if AB InBev formalized the GBP42-a-share proposal, it would reject this.

"AB InBev is disappointed that the board of SABMiller has rejected both of these prior approaches without any meaningful engagement," said the brewer. "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 said earlier Wednesday that AB InBev had timed the initial 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.

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 this, said AB InBev, cautioning that there is no certainty that a firm offer will be made.

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 annual 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 with Molson Coors Brewing Co. 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."

AB InBev said it would establish a secondary listing on the Johannesburg stock exchange and have a local board there.

SABMiller's third-largest investor, South Africa's Public Investment Corp., said the offer from AB InBev "addresses one of its concerns," namely that the company remain listed in Johannesburg. PIC said before the rejection that it would wait for guidance from SABMiller's board on the financial benefits of the proposed merger.

A deal between AB InBev and SABMiller has been rumored for years, and some analysts have described it 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 10:54 ET (14:54 GMT)

Altria (NYSE:MO)
Historical Stock Chart
From Mar 2024 to Apr 2024

Altria (NYSE:MO)
Historical Stock Chart
From Apr 2023 to Apr 2024