By Saabira Chaudhuri And Tripp Mickle
SABMiller PLC rejected a takeover proposal from Anheuser-Busch
InBev NV on Wednesday valuing it at up to $104 billion in cash and
stock, the latest salvo in what has become a tense negotiation
between the world's No. 1 and No. 2 brewers.
A combination of the two companies would create a beer behemoth
with unrivaled scale and reach, bringing AB InBev brands like
Budweiser and Stella Artois, which have been languishing in key
markets, into new corners of the globe.
SABMiller has a major presence in Africa and significant market
share in Colombia, Ecuador, Peru and Australia, while AB InBev is
strong in Canada, Mexico, Brazil, Argentina and parts of Western
Europe.
The deal faces many hurdles, from likely antitrust scrutiny to
tensions between SABMiller's two largest shareholders, which
together control 41% of the company.
U.S. tobacco group Altria Group Inc., the maker of Marlboro
cigarettes, owns more than 25% of the brewer and has said it would
support a deal at or above AB InBev's proposed price of GBP42.15
($64.2) a share--a 44% premium over SABMiller's Sept. 14 closing
price, the day media speculation about a potential takeover began
to circulate.
But Altria's three representatives on SABMiller's 16-member
board were the only ones not rejecting the proposal Wednesday,
which the board said "still very substantially undervalues
SABMiller, its unique and unmatched footprint, and its stand-alone
prospects."
The Santo Domingo family of Colombia, which owns about 15% of
the beer giant through its BevCo Ltd. investment vehicle, sided
with the rest of the board. BevCo didn't immediately respond to a
request for comment.
To make the proposal more palatable to SABMiller's top two
shareholders, AB InBev included an option that would let them be
paid mostly in stock, albeit at a lower valuation. This alternative
would offer tax and accounting advantages and give both Altria and
the Santo Domingos an opportunity to keep a stake in the combined
company.
Alejandro Santo Domingo, who is on the board of SABMiller, is
likely to seek a board seat at the combined company, a person
familiar with the matter has said. One thing that could work in AB
InBev's favor, according to this person, is that Mr. Santo Domingo
personally knows the partners of Brazilian private-equity firm 3G
Capital Partners LP, which was started by AB InBev's
shareholders.
Wednesday's announcement marks the first time AB InBev made
public the terms of a proposal to acquire SABMiller, which it has
been eyeing for years. AB InBev said it has made two prior written
proposals in private to the brewer--the first for GBP38 a share in
cash and the second, on Monday, for GBP40 a share in cash.
Belgium-based AB InBev has until noon EST on Oct. 14 to make a
firm offer for SABMiller or walk away for at least six months. It
noted that Wednesday's proposal doesn't constitute a firm
offer.
The public proposal was designed to pressure SABMiller's board
into engaging in talks, AB InBev Chief Executive Carlos Brito told
analysts Wednesday. He encouraged SABMiller shareholders to review
the proposal and persuade SABMiller's board to engage.
Mr. Brito said AB InBev doesn't plan to pursue a hostile bid at
this point and would still prefer to secure a "recommended
transaction," but to achieve that, it needs SABMiller's board to
cooperate. To date, he said, "their board is going to great lengths
to avoid engagement."
For its part, SABMiller said AB InBev had timed its 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.
In a separate release Wednesday, Altria said it supported the
current proposal, including the share alternative, and recommended
that SABMiller's management engages "promptly and constructively"
in talks.
SABMiller shares closed 0.3% higher at GBP36.33 in London, while
AB InBev's shares rose by 0.6% in Brussels.
Combined, the two companies would generate annual revenue of $64
billion and earnings before interest, taxes, depreciation and
amortization of $24 billion.
Research firm Euromonitor estimates the combined company's
market share would be 29% after likely divestments, giving it a
20-percentage-point lead over the next-biggest brewer, Heineken
NV.
Because of the global reach of AB InBev and SABMiller, they
likely will 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
London-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."
In an appeal to the original home of the former South African
Breweries, AB InBev said a combined company would establish a
secondary listing on the Johannesburg stock exchange and have a
local board there.
AB InBev's last deal--a $20.1 billion deal for the Mexican
brewer Grupo Modelo in 2012--partly backfired on the company in the
U.S., its most profitable market. The U.S. Department of Justice
forced AB InBev to sell a Mexican brewery to Constellation Brands
Inc., along with permanent rights to peddle all of Modelo's beers
in the U.S.
The deal has benefited AB InBev, which last year generated sales
of $4.6 billion in Mexico, a market that previously contributed
little to its bottom line. But it also gave birth to a formidable
rival in the U.S.: Sales of Corona and Modelo Especial have been
growing at a double-digit pace in the U.S., cutting into sales of
AB InBev's leading brands Budweiser and Bud Light.
Anupreeta Das contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Tripp Mickle at Tripp.Mickle@wsj.com
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(END) Dow Jones Newswires
October 07, 2015 17:34 ET (21:34 GMT)
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