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Johannesburg - The board and shareholders of SABMiller could be cashing out big time if the proposed R1.4 trillion takeover by Anhauser-Busch InBev (AB InBev) materialises.
Even though SABMiller has South African roots, the deal, totalling more than the government’s annual budget, holds few long-term benefits for the local economy.
Shareholders should also hold off on toasting it just yet.
The two brewers have agreed “in principle”, but South African authorities and unions could still spoil the party.
The authorities will do everything in their power to prevent the deal from hurting local tax revenue or jobs.
Last year, SAB paid tax of R15.6bn and employed 6 433 people in South Africa.
Peter Montalto, an economist at investment company Nomura, said the government would probably “interfere” in the takeover via the Competition Commission under the umbrella of Minister Ebrahim Patel’s economic development department.
“This is despite the fact that AB InBev actually has a modest local footprint,” said Montalto.
He said government was also clearly not scared of creating the perception that it was willing to make things hard for foreign investors.
“Recall that government is going ahead with its plan to force security companies to have 50% local ownership and to limit foreign ownership of land.
“Although the Competition Commission couldn’t necessarily stop a well-structured bid, they can complicate it.”
The Public Investment Corporation (PIC) is insisting that the new brewing giant that emerges be listed on the JSE so that local investors, like the PIC itself, can benefit from the future growth of the company.
Regulatory hurdles
If the new combined company did stay on the JSE, it would be the largest company on the bourse, said Jean Pierre Verster, an analyst at asset management firm 36ONE.
Even though the PIC is the fourth-largest shareholder in SAB, it still only owns 3% of the company.
Montalto nevertheless believed the state pension fund manager had the power to sway government policy.
In terms of South Africa’s exchange control rules, SAB would also first need the approval of the minister of finance as well as the Reserve Bank, according to a statement released by National Treasury on Thursday.
When SAB moved its headquarters to the UK in the late 1990s, government imposed conditions.
Those conditions, which related to SAB’s assets and sales revenue in South Africa, would have to remain in place to defend South Africa’s public interest, said Treasury.
The merger of the two brewers would probably also lead to some measure of consolidation and job losses, according to the Food and Allied Workers’ Union (Fawu).
Fawu further cautioned that job losses could stem from a consolidation of SABMiller and Coca-Cola’s bottling operations on the continent.
Competition authorities in the US and China could also delay the deal.
In the US, the new combined company will probably be forced to sell its stake in MillerCoors to North American rival Molson Coors.
In China, the new company will have to fight to keep its partnership with China Resources (CR) Snow Breweries.
SABMiller has a 49% stake in CR Snow, producer of Snow, one of the world’s most popular beers.
Chinese authorities have, however, previously attempted to block partnerships between SABMiller and AB InBev in China, reports AP.
Flood of foreign currency
AB InBev has every incentive to overcome these hurdles after agreeing to a $3bn (R39.2bn) break fee should the deal fall through for any reason. Opposition from local and international authorities means SAB shareholders will more likely than not have to wait at least a year before the deal is sealed.
Only then will they see any cash from it.
The current offer would give shareholders in SABMiller about R890 per share in cash.
SAB’s top management could walk away with a collective payout of $2.1bn in the form of shares and share options, the UK Guardian reported.
Alan Clark, SAB’s CEO, could get more than £80m (R1.6bn).
One transitory benefit for South Africa would be the flood of foreign currency into the country when the deal is consummated.
That would be good for the rand, said Wayne McCurrie, portfolio manager at Momentum Wealth.
The inflow of foreign exchange would help narrow the gap in the country’s current account, which would in turn be good for the credit rating.
Treasury, which was “obsessed” with the country’s credit rating, would be shooting itself in the foot it if it blocked the deal, said McCurrie.
