TheChek News Flow

* Increased offer difficult, but not impossible

* Bump in cash offer may void Altria and BevCo irrevocables

* Attention turns to SABMiller investors Altria/BevCo's eligibility to vote

SABMiller’s [LON:SAB] board will meet to discuss its recommendation on AB InBev’s [EBR:ABI] cash bid when it receives a formal offer from ABI once all pre-conditions have been met, it is understood.

A ruling from China’s Ministry of Commerce, the final pre-condition, is expected either this week or next, it was said. The shareholder vote on the deal is said to still be several weeks, and possibly over a month, away.

The SAB board will have to consider its recommendation before the scheme of arrangement document is posted to SAB shareholders. In the deal announcement, the parties said the scheme document will be dispatched “as soon as reasonably practicable” after all the pre-conditions are satisfied or waived.

Announcing the deal in November, SAB’s board said it intends to recommend the GBP 44/share offer. Since then, Chairman Jan du Plessis has said he will listen to investors calling on the board to reconsider after the value of ABI’s partial share-and-cash alternative (PSA) jumped above the cash bid.

Several investors including Elliott, TCI and Sandell have reportedly begun to pressure SAB’s board to renegotiate the cash offer up to remove the discrepancy.

It was stressed that the board meeting after receipt of the formal offer is a normal course of action, and does not necessarily signify that the SAB board will look to pull its preliminary recommendation.

An increase in terms would not be impossible, but would be very difficult because a number of things would need to fall into place, it was said.

Altria, SAB’s largest shareholder, can withdraw its irrevocable undertaking to accept the PSA if the cash offer is increased without its consent, when the cash element of the PSA is not increased by at least an equal amount. The irrevocable from SAB’s second largest shareholder, BevCo can also lapse for a number of reasons, including if Altria’s lapses.

Scheme vote

Meanwhile, there is a growing focus in the legal and arb communities on how voting at the scheme court meeting will play out. The deal requires a majority in number of those present/voting, representing 75% of the value of shares present/voting to approve the deal.

SABMiller may find it tough arguing its two largest investors, with 40.45% between them, are allowed to vote alongside other shareholders at the meeting, three independent lawyers suggested.

In its offer announcement, ABI notes that due to the arrangements with it has with Altria and BevCo, SABMiller will need to determine with the UK court whether the two shareholders should be treated as a separate class or classes from others at the meeting.

If they are treated as different and removed from the vote, this could place additional pressure on SABMiller’s board to seek a price renegotiation, as other investors will have greater relative power at the meeting, the lawyers said.

ABI negotiated the PSA “with and for” Altria and BevCo, CEO Carlos Brito said in October 2015 while courting SABMiller. The alternative includes unlisted shares carrying a five-year lock-up, and a minimal amount of cash. It was designed to be unattractive to all other investors, initially with a lower premium to the cash bid, as reported.

It could be argued that the two large holders are in a different economic position regarding the deal, raising the possibility the court decides they are in a different class of investor, the lawyers said. Altria and BevCo have provided irrevocable undertakings with ABI to vote for the deal if they are allowed at the scheme meeting, and also to accept the PSA.

“I had assumed that they would be treated as a different class, because the PSA was designed for them,” one of the lawyers said. The level of the cash offer could be argued to effectively not matter to the two investors, indicating they have a different economic interest, the second lawyer suggested.