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 assuage concerns 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 shareholders of
London-based SABMiller 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 partial-share alternative has soared in value, because AB
InBev shares are priced in euros.
AB InBev, the world's largest brewer, also raised the cash
component of the alternative offer by 88 pence a share. formally
agreed on the dealIt 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.
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.
AB InBev's ability to sweeten the deal was limited by its
decision to hedge its exposure to the British pound in December.
With the currency falling by more than 10% against the dollar since
Britain's vote to leave the EU, the hedge has cost AB InBev an
estimated $10 billion, according to Susquehanna International Group
LLP. The beer giant has "no room to increase the offer" as a
result, wrote Susquehanna analyst Pablo Zuanic.
An AB InBev spokeswoman said the currency hedges were made to
ensure that the proposed deal would be delivered to SABMiller
shareholders regardless of currency movements.
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.
The deal still needs to be approved by shareholders of AB InBev
and SABMiller. Shareholder votes won't be scheduled until after
Chinese regulators have weighed in on the deal. China remains the
last big antitrust hurdle to the combination, which has already
been approved by competition authorities in the U.S., the European
Union, South Africa and several other jurisdictions.
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. Elliott and TCI declined to comment.
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.
A long-term SABMiller shareholder with a roughly 1% stake in the
company -- who declined to be identified -- said his firm also
opposes the deal, saying it fails to account for the full value of
SABMiller's assets.
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.
Combined, Altria and BevCo control about 41% of SABMiller's
stock.
Altria declined to comment. Representatives for the Santo
Domingo family weren't immediately available.
SABMiller said in a statement that 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 Research 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.
RBC analyst James Edwardes Jones said he had "already felt that
ABI was paying a full price."
SABMiller shares closed 0.7% lower at GBP44.10 in London. AB
InBev shares were up 0.8% in Brussels.
The two brewing giants had expected to close their merger in the
second half of this year. 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.
--Tripp Mickle contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
July 26, 2016 17:11 ET (21:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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