Labatt owner ups offer for SABMiller as deadline looms


Reuters — Anheuser-Busch InBev raised its proposed takeover offer for SABMiller on Monday, as the world’s largest brewer tries to win over its smaller rival to the idea of creating a giant that would make nearly a third of the world’s beer.

The owner of the Budweiser, Labatt and Alexander Keith’s brands said it would offer 43.50 pounds per share in cash to most SABMiller shareholders, an improvement from the 42.15 pounds it put forward last week.

Under UK takeover rules, AB InBev has until 1600 GMT on Wednesday to launch a formal bid for SABMiller, which would rank as the biggest British company takeover at 67 billion pounds (C$133 billion). SAB can ask the takeover panel for an extension if it wants to continue discussions.

Monday’s sweetened offer is the fourth, following rejections of cash offers at 38, 40 and 42.15 pounds per share.

Three of SAB’s top 10 shareholders had spoken out in support of the board rejecting the previous offer, which SABMiller said “very substantially” undervalued the company.

SAB declined to comment on the new offer, but a source close to the situation said the board would review the new proposal and respond as appropriate. The SAB board was meeting late on Monday, according to Bloomberg and the Telegraph.

Shares of SAB, maker of beers including Peroni and Grolsch, closed down 1.3 per cent at 36.67 pounds, as some investors worried the parties were still too far apart to agree to a deal.

“The last reaction from SAB was that the previous offer was significantly undervaluing it,” said Morningstar analyst Phil Gorham. “The latest offer is not a significant improvement.”

Still, the sweetener may be enough to at least bring SAB to the table.

“We believe today’s proposal will likely put additional pressure on SABMiller’s board to engage in discussions ahead of the ‘put up or shut up’ deadline on 14 October,” analysts at Nomura said. They saw SAB’s move last week, in which it raised its cost-savings target, as aimed at maximising value, not derailing the deal.

Tobacco group Altria Group, which owns about 27 per cent of SABMiller, had already endorsed AB InBev’s last offer, while the Santo Domingo family of Colombia, which owns about 14 per cent, rejected it. Altria declined to comment on Monday, while representatives of the Santo Domingos could not be reached.

The acceptance by both parties of a lower-priced cash-and-share alternative is a precondition to a deal, and Monday’s improved offer significantly improves the offer for them.

AB InBev raised the cash portion of the cash-and-share alternative to 3.56 pounds per share, up from 2.37 last week, an increase of 50 per cent.

“It might get them to talk,” said Exane BNP Paribas analyst Eamonn Ferry.

Very close

The Colombian board members who voted against last week’s offer are Alejandro Santo Domingo and Carlos Alejandro Perez Davila, cousins who also run New York-based Quadrant Capital Advisors.

Yet Alejandro Santo Domingo, a Harvard-educated fixture of New York high society, is, according to media reports, well-acquainted with AB InBev’s controlling shareholders, including Brazilian billionaire Jorge Paulo Lemann.

“We think the Colombians are very close to Lemann and that Lemann knows exactly what price the Colombians want,” said an SAB shareholder with a less than one per cent stake. He said institutional shareholders were not enthusiastic about endorsing any offer without knowing where Santo Domingo stood.

The cash-and-share alternative is meant to be unattractive for institutional shareholders. It was designed “for and with” Altria and the Santo Domingos, who would have to pay large capital gains taxes on cash proceeds.

Taking into account the discounted price of the share alternative, the new offer would involve AB InBev paying roughly 67 billion pounds. The previous offer would have seen the company pay 65 billion pounds.

While AB InBev boss Carlos Brito has not ruled out going hostile, the company has said it prefers a friendly deal.

Yet for AB InBev shareholders, the higher offer means less future upside if the deal goes through. “It’s obviously less attractive than it was and leaves less scope for error,” said one analyst.

Martinne Geller and Philip Blenkinsop report for Reuters from London and Brussels respectively. Additional reporting for Reuters by Freya Berry in London and Tiisetso Motsoeneng in Johannesburg.

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