MO Altria Group Inc

By Saabira Chaudhuri 

LONDON--A public spat continued Thursday between Anheuser-Busch InBev NV and its would-be takeover target SABMiller PLC, increasing the uncertainty of an accepted deal by Wednesday's U.K. deadline.

AB InBev said SABMiller's claim that its latest acquisition proposal undervalues the London-based brewer "lacks credibility." The world's largest brewer, based in Belgium, said SABMiller's shareholders should "voice their views and should not allow the board of SABMiller to frustrate this process and let this opportunity slip away."

"We've noted their announcement--it contains nothing new," an SABMiller spokeswoman responded. The maker of Pilsner Urquell and Peroni Nastro Azzurro previously accused AB InBev of making proposals that are "highly conditional," with several regulatory and structural uncertainties, and said the latest proposal "very substantially undervalues" it.

Over the past three weeks, second-ranked global brewer SABMiller has dug in, rejecting three proposals from AB InBev. On Wednesday, SABMiller took just six hours to reject AB InBev's proposed offer of GBP42.15 ($64.80) a share in cash alongside a less valuable cash-and-stock deal available to 41% of SABMiller's shareholders. Under U.K. takeover rules, AB InBev has until Oct. 14 to make a firm offer or walk away for at least six months.

Despite the posturing on both sides, many analysts think a deal will be announced.

"Both parties have a lot at stake," said Berenberg analyst Javier Gonzalez Lastra. AB InBev, he said, "needs a sizable transaction for its next cycle of growth as profit growth becomes more difficult to come by in its two core markets of U.S. and Brazil." Meanwhile, "the SABMiller board is increasingly under pressure" now that AB InBev's proposal is public and Marlboro cigarette maker Altria Group Inc., SABMiller's largest shareholder, has declared support.

The sparring is "more as a form of public negotiation than serious marking of their respective territories," said RBC analyst James Edwardes Jones. "Neither side can afford this deal to fall through."

SABMiller's share price has weakened from a year ago, while AB InBev's performance has worsened. Consumers in North America and Europe have been steadily shifting toward wine or spirits such as bourbon over two decades. When drinking beer, more are bypassing the mass-market lagers that are the mainstays of global beer giants in favor of craft beers and Mexican imports.

Still, SABMiller's shares closed at GBP36.41 in London on Thursday, implying that investors are baking in the likelihood that a deal might not go through--either due to antitrust issues or because SABMiller's board won't budge.

AB InBev Chief Executive Carlos Brito on Wednesday said the cash-and-stock alternative was designed "with and for" SABMiller's second-largest shareholder, the Santo Domingo family of Colombia. The family and Altria between them hold 41% of the company. The package comes with tax and accounting advantages for those holders that would balance out the lower nominal value.

Altria has indicated it would accept a deal at or above AB InBev's latest proposed price, but the Santo Domingos continue to hold out. Whether AB InBev can turn that around is a key issue.

Referring to both Altria and the Santo Domingo family, Mr. Brito said: "There's no transaction without both of these big shareholders supporting and taking the paper."

Alejandro Santo Domingo, one of the family's representatives on the SABMiller board, declined to comment Thursday.

Investors have been burned lately by a string of deals that have fallen through. Following the news that AbbVie Inc. could abandon a $54 billion takeover for Shire PLC last year, Shire's share price sank 22% in a day. When Monsanto Co. in August dropped its $46 billion bid for Syngenta AG, the Swiss agribusiness giant's shares fell 18%.

Shares can also trade well below a likely offer price to account for the time it would take for a deal to be completed. Given the antitrust hurdles that would be tied to a merger between the world's two largest brewers, some antitrust experts have estimated the deal could take as long as a year to close.

Many in the industry think AB InBev will go higher than its latest offer.

Sterne Agee analyst April Scee said AB InBev's current offer undervalues SABMiller "given Africa is the last frontier in beer." SABMiller has a long-standing presence in Africa, with operations in 38 African markets.

"We expect a deal to be done at around GBP44 per share," Mr. Edwardes Jones said, referring to the all-cash component. With the cash-and-stock alternative, the overall per-share deal price would come in lower.

While AB InBev's recent overtures have been far from friendly, many industry experts said they would be surprised if the brewer went hostile, or took an offer to shareholders without the blessing of the board. Roughly 30% of SABMiller's earnings last year came from joint ventures and associates, a tangled web of relationships that AB InBev would need its cooperation to navigate.

AB InBev is used to hard negotiating. The company's $20.1 billion deal for Mexican brewer Grupo Modelo in 2012 was no walk in the park. The Justice Department in 2013 sued AB InBev, seeking to block its deal with the Corona brand owner. The suit eventually was settled after AB InBev agreed to sell Modelo's entire U.S. business to Constellation Brands Inc. and acquire the 50% of Modelo it didn't already own.

Tripp Mickle in Atlanta contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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(END) Dow Jones Newswires

October 08, 2015 13:54 ET (17:54 GMT)

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