MO Altria Group Inc

By Saabira Chaudhuri 

LONDON-- Anheuser-Busch InBev NV on Tuesday raised its offer for SABMiller PLC in their proposed $100 billion-plus beer megamerger, trying to quell an investor revolt over the valuation of the deal after the British pound's steep descent.

The Belgian-based beer giant lifted its cash offer to GBP45 ($59.10) a share, from GBP44 a share, to appease many of London-based SABMiller's shareholders, who have watched the value of the offer fall along with sterling. The pound sank sharply after the June 23 vote by Britain to leave the European Union.

That fall has deflated the value of AB InBev's cash-only offer, intended for most shareholders, compared with a separate, cash-and-share offer aimed at SABMiller's two biggest shareholders, U.S. cigarette maker Altria Group Inc. and Colombia's Santo Domingo family. That so-called partial-share alternative has soared in value, because AB InBev shares are priced in euros.

AB InBev also raised the cash component of the alternative offer by 88 pence a share. After Tuesday's sweetened terms and the rise in the euro against the pound, the partial-share offer is now worth GBP51.14 based on Monday's closing prices, compared with GBP41.85 in November, when both sides formally agreed on the deal. The partial-share deal is technically open to all shareholders, but it comes with a five-year lockup that is unattractive for many investors.

The fresh offer comes after both companies spent months pursuing regulatory approval for the megamerger around the world. They have agreed to sell big chunks of their business in the process, raising the stakes for both to reach a new deal.

AB InBev, the world's largest brewer, said the sweetened offer was its final one, a turn of phrase that under U.K. takeover rules prevents it from making another offer for six months.

SABMiller, in its own statement, said it has hired Centerview Partners Holdings LLC to give it financial advice following the recent currency volatility, and that its board would consult with shareholders and meet to formally review the offer. It said the chairmen of both brewers held talks on Friday, but they didn't discuss the terms of a new deal.

The new offer raises the total value of the deal to about GBP79 billion, or $103.81 billion, from its previous offer of about GBP71 billion. The new terms show the deep decline in the pound: The original offer was worth about $108 billion at November's exchange rates.

Bernstein estimates that the increased offer represents an 8% premium to the "fair value" of SABMiller. That is up from 6% before the increased offer but is still sharply below the roughly 33% premium when AB InBev's approach was first announced in October, the firm noted.

In afternoon trading Tuesday, SABMiller shares were down 0.3% to GBP44.26 in London after an earlier modest rise. AB InBev shares were up 0.6% to EUR115.50 ($126.83) in Brussels.

Hedge funds including Elliott Management Corp. and TCI Fund Management Ltd. have built stakes in SABMiller in recent days and have been agitating for a higher offer, according to a person familiar with the matter.

Some big SABMiller shareholders were digging in their heels. Aberdeen Asset Management PLC, one of SABMiller's major investors, said the new offer still undervalues the company.

"The revised deal remains unacceptable," the investment firm said, "as it both undervalues the company and continues to favor SABMiller's two major shareholders." It said that in the absence of a better offer, it was content to stay a shareholder in SABMiller as a stand-alone firm. Aberdeen owns 1.2% of SABMiller.

For 41.6% of stock, AB InBev created the partial-share alternative as a combination of cash and unlisted stock, designed to let Altria and the Santo Domingo family's BevCo Ltd. investment vehicle retain their relative holdings in the combined firm and their board seats. The alternative also protects them against some tax and accounting disadvantages related to a deal.

RBC analyst James Edwardes Jones said he had "already felt that ABI was paying a full price" and that the latest deal is even more expensive.

The two brewing giants had expected to close their merger in the second half of this year. The deal has already been approved by competition authorities in the U.S., the European Union, South Africa and several other jurisdictions, leaving Chinese approval the last big antitrust hurdle to the combination.

The deal is critical to AB InBev's growth. Buying SABMiller allows AB InBev to reduce its reliance on the U.S., where it has had trouble getting younger people to drink more Budweiser, and gives it access to the growing African market, which is expected to drive beer-industry sales.

Ian Walker contributed to this article.

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

(END) Dow Jones Newswires

July 26, 2016 10:49 ET (14:49 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