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Geneva - SABMiller [JSE:SAB] doubled a pledge to cut costs as it seeks to rally shareholders around its rebuttal of Anheuser-Busch (AB) InBev, the larger rival seeking to buy the brewer for a record £65.2bn (R1328.33bn)
Annual savings in the 12 months through March 2016 should exceed R5.7bn and reach R13.95bn by 2020, the brewer said on Friday in a statement. The company had previously targeted about R6.6bn in annual savings by 2018.
The onus is on SAB to prove it’s worth more after saying AB InBev’s proposal “substantially undervalues” the brewer of Grolsch and Peroni. Under UK regulation rules, AB InBev has until October 14 to make a formal offer for SABMiller.
Altria Group, SABMiller’s largest shareholder with a 27% stake, has urged the board to accept the proposal by AB InBev, which came out on Thursday criticising the target company for its refusal to engage, saying its resistance lacks credibility.
READ: SABMiller’s bid rejection lacks credibility - AB InBev
Building defenses
“Clearly it makes a lot of sense as part of SABMiller’s bid defense,” said Trevor Stirling, an analyst at Sanford C. Bernstein. "They’re saying they can drive out cost savings as well as AB InBev can to reassure shareholders that there’s no need to sell."
The new cost savings will come mostly from procurement and also from making manufacturing and distribution more efficient, the company said. SABMiller said the plan assumes that there is no change of ownership.
SAB rose as much as 0.3% to 3 653 pence in London. AB InBev’s proposal of 4 215 pence a share in cash that most stockholders would receive is 44% above where SABMiller was trading before speculation of a deal.
“Our recent trading statement highlighted our accelerating growth in the second quarter,” said CEO Alan Clark. “Another key plank of our strategy is to build a globally integrated organization to optimise resource, win in market and reduce costs.”
Clark said SABMiller has a 38% profit margin in its biggest 20 markets, based on earnings before interest, tax, depreciation and amortisation. Still, that’s short of AB InBev’s profitability, the highest among major brewers.
The Belgian brewer’s Ebitda margin for its total business was 39.4% last year. Including all of SABMiller’s markets, the brewer’s most recent full-year Ebitda margin was 25.4% on an adjusted basis, or 29.5% unadjusted.
