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London – SABMiller’s [JSE:SAB] board this week will discuss growing pressure from investors to seek a higher cash takeover offer from Anheuser-Busch (AB) InBev [JSE:ANB] after fund managers complained that the deal is much less attractive following the plunge in the pound, people familiar with the matter said.
Firms including TCI Fund Management, Davidson Kempner Capital Management and Elliott Management have asked SABMiller to reconsider AB InBev’s £44-a-share cash bid, said three of the people, who asked not to be named discussing private information. Aberdeen Asset Management and Legal & General Group are also concerned with the deal’s structure, according to two people familiar with their thinking.
The currency’s drop since the UK voted June 23 to leave the European Union has had two effects on the £77bn (R1.45trn) acquisition of the London-based brewer.
First, it means that SABMiller’s two biggest shareholders are getting a sweeter deal than other investors. An alternative cash-and-stock offer that AB InBev crafted for the two has soared in value, from about £39 a share when the deal was announced to almost £50 now, because AB InBev’s euro-denominated stock is more valuable in pounds. The cash proposal is fixed at £44.
Earnings boost
Second, the drop has sparked a surge in UK consumer stocks like Diageo that sell globally, because those companies will get a big earnings boost when converting international sales into their devalued home currency. SABMiller shares haven’t seen a similar jump because no matter how high valuations go in the industry, the £44-cash price caps the gains.
SABMiller’s board, which is convening before the company’s annual shareholder meeting on Thursday, has unanimously recommended the offer from the maker of Budweiser beer. Representatives for SABMiller, TCI, Legal & General and Elliott declined to comment. Aberdeen and Davidson Kempner didn’t immediately return calls seeking comment.
The cash-and-stock alternative will allow SABMiller’s top two investors, tobacco company Altria Group and Bevco, the holding company of Colombia’s Santo Domingo family, to benefit from the deal while deferring the tax hit they would have taken if they had sold all their shares for cash.
Locked up
In theory, any SABMiller shareholder can choose the partial share alternative. But as originally devised, it was worth less than the cash bid, and the shares that will be issued can’t be traded for five years. Most fund managers are unable or unwilling to accept stock that’s locked up for that long, meaning that in practice it will be Altria and Bevco that will choose cash and stock.
AB InBev could increase the cash offer by as much as 15% with limited impact to the economics of the deal, said Nik Oliver, an analyst at UBS. Any change in the cash offer would have to seek consent from Altria and Bevco unless AB InBev increases the cash element of the so-called partial share alternative by an equal or greater amount, per the offer’s terms.
TCI, Davidson Kempner, and Elliott Management each own between about 1% and 1.5% of SABMiller stock through derivatives. Davidson Kempner disclosed its holding in a June regulatory filing, while Elliott disclosed its stake last week. Aberdeen and Legal & General own 2.6% and 1.7%, respectively.
SABMiller shares declined 0.2% to £44.19 on Tuesday in London.
