MO Altria Group Inc

By Saabira Chaudhuri And Tripp Mickle 

Market leader Anheuser-Busch InBev NV went public with a takeover proposal for SABMiller PLC that valued the company at up to $104 billion after winning over its biggest shareholder, but the world's No. 2 brewer said the price was too low.

A combination of the two companies would create a beer behemoth with unrivaled scale and reach, bringing 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, would likely 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 has ties to Brazilian private-equity firm 3G Capital Partners LP, whose founders played a key role in molding AB InBev into its current form.

Wednesday's announcement marks the first time Belgium-based 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--the first for GBP38 a share in cash and the second, on Monday, for GBP40 a share in cash.

Under U.K. takeover rules, AB InBev has until 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 the company hadn't offered it comfort on the significant regulatory hurdles in the U.S. and China.

Altria said Wednesday it supported the current proposal, including the share alternative, and recommended that SABMiller's management engage "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 their global reach, they likely will have to seek antitrust clearance from jurisdictions around the world.

The biggest regulatory hurdle is likely to be the U.S., 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 a 14% 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 controls 23% of the market and produces the top-selling Snow brand.

AB InBev said that 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 helped boost AB InBev's presence in Mexico, where it generated sales of $4.6 billion last year. 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 country, 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

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 07, 2015 19:45 ET (23:45 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