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.

The investor shift from active asset management to cheaper passive strategies will accelerate in the coming years and weigh on the earnings and credit ratings of investment groups unable to adapt to the new realities of the money management industry, according to Moody’s.

The worsening ability of many fund managers to beat their benchmarks, coupled with their costs, has led to an investor exodus in favour of cheaper investment strategies such as exchange-traded funds, that seek to merely mimic the performance of a market at the cheapest possible cost.

Ongoing for over a decade, the trend has accelerated and broadened recently, and badly rattled the traditional asset management industry that controls trillions of dollars worth of savings globally. As a result many have sought to build or buy their own passive investment operations, but those that fail to adjust will increasingly struggle, Moody’s warned in a report published on Monday.

“Large traditional asset managers that lack a core competency in passive investing, or that are unable to deliver outperformance to justify their fees, are at risk of seeing their business profiles weaken further, increasing the likelihood of ratings deterioration,” the rating agency’s report said.

Academics have long shown that the average fund manager will only perform as well as the market, and underperform it after fees, but the ability to even get close to benchmarks appears to have atrophied further in recent years.

Only 18 per cent of “large cap” US fund managers – which invest in the biggest American companies – managed to beat the Russel 1000 index in the first half of 2016, according to Bank of America Merrill Lynch, the worst performance of active funds since at least 2003.

Moody’s argued that the fundamental driver of the poor performance of active asset managers is the sheer size of the industry, with over 9,000 mutual funds and 10,000 hedge funds in the US, according to the rating agency.

“Overcapacity leads to investment mediocrity, since true talent is limited and size works against the investor in the form of increased transaction costs and difficulty in identifying scalable investment opportunities,” the report said. The active asset management industry will therefore have to “shrink substantially” in the coming years to improve performance, it added.

Some big asset managers agree, and have moved to constrain fund sizes and focus more on returns. “There is a scale problem in the industry,” Peter Kraus, the chief executive of AllianceBernstein, told the FT earlier this year. “Our advice to the industry is to constrain ourselves. We are hurting ourselves by growing too big.”

Others have predicted that a wave of consolidation will sweep over the industry as a result of the current challenges, but Moody’s was more circumspect, doubting that this would be a “panacea”.

“Acquisitions do not address the root cause of active underperformance, since they do not reduce the amount of capital managed by active managers or improve the aggregate performance of the industry,” the report argued. “Instead, a fundamental rethinking of the traditional active mutual fund industry as a whole is required.”

The trend towards passive investing is particularly powerful in the US.While $21.7bn gushed out of actively managed US equity funds last month - the worst monthly figure since the depths of the financial crisis - passive funds absorbed $8.7bn.

A new rule on the fiduciary duties of investment advisors introduced by the Department of Labor this year is expected to speed up the investor shift from active to passive investment vehicles.

- AdWeek A recent study conducted by SimilarWeb found that Americans spent less time on the four largest social networks in the first part of this year than they did during the same time period of 2015. More specifically, the study saw a 36.16 percent decrease on Instagram, 27.94 percent on Twitter, 19.21 percent on Snapchat and 6.7 percent on Facebook.

The elite French MBA provider is teaching the basics of business to those aged between 15 and 17

Business school students are notorious for pulling all-nighters to meet work deadlines. That ought not to be the case with a group arriving this month for a €5,200 course at Insead, the elite French purveyor of MBAs.

Far from working until the small hours, these students will be expected to be tucked up in bed, with lights out, at 11pm (except on Fridays and Saturdays, when they get to stay up an extra hour).

For the second year, Insead is hosting 15-17 year olds at a two-week residential summer school, promising to give them “a unique and transformative experience” at its campus amid the forest of Fontainebleau, on the southern outskirts of Paris.

A typical day on the Summer@Insead scheme, which is taught in English, will run from 8.30am to 5pm, with a mix of classes, company visits and guest speakers — all aimed at increasing the teenagers’ “business awareness”.

In strategy class, they will be asked to ponder what managers can do “to drive performance and growth in the face of fierce competition in an uncertain world”.

In decision-making, elements of applied psychology will be introduced to examine how to make better choices amid uncertainty. In negotiation, they will learn how to discern a counterpart’s underlying needs.

Visits will include trips to hot Paris start-up BlaBlaCar (founded by an Insead MBA graduate) and an innovation centre run by consultant Accenture. In the late afternoon and evenings there will be sport, games and other more relaxing activities.

Peter Zemsky, Insead deputy dean and director of the summer school, says the course is a powerful way for it to reconnect with alumni, rather than being a standalone moneymaker.

Almost all the 70 teenagers signed up for the course are children of former Insead students, who feel that the school is “a little bit of the family fabric”, he says.

The alumni network has also been tapped to provide counsellors in their twenties to help mentor the students and direct extracurricular activities.

Alumni received a 10 per cent discount on the fee but this goodwill gesture could pay off if they end up donating to the school or signing up for one of its executive education courses.

Such an approach could leave Insead vulnerable to criticism that it is creating a closed loop of entitlement.

Prof Zemsky acknowledges the risk and says this is likely to be addressed in future iterations of the course if it continues, through scholarships to “bring in less privileged kids”.

However, he stresses that the geographic and cultural diversity of Insead’s MBA students is even greater at the level of their children, given the peripatetic lives many of their families have led in pursuit of their elite careers.

Insead is by no means the only body selling courses to teens, their parents and schools, with the promise of helping these young people get ahead in business in their later lives.

But there are lots of sceptics who doubt the real-world value of an MBA — can an MBA-style taster be worth the money when the participants are so far from entering the world of work?

Prof Zemsky says the teaching has been adapted for the younger cohort, while tensions between business and society will also be discussed during the fortnight.

Getting introduced to subjects such as decision-making ought to benefit the teens as they make key choices in young adulthood, he adds. “We are not trying to make them little business people.”

Hammerson, the FTSE 100 retail property group, has revealed a decline in the value of its British portfolio in a further sign of the faltering commercial property market.

Hammerson, which owns British shopping centres such as Brent Cross and a stake in the Bullring in Birmingham, said that £51m was wiped off the value of its UK properties in the six months to the end of June.