* Once again last week was dominated by ABI-SAB — We continue to believe a
deal will be achieved. Last week Altria (27% owner) said it supported the offer, but
BevCo voted against, even though ABI said in its conference calls that the offer had
been designed “with and for” these holders. We don't think it would have
approached SAB in the first place without being reasonably confident it would have
the backing of the 2 key shareholders. Therefore we would expect BevCo to be
supportive at a revised price. We suspect both Altria and BevCo would have been
aware in advance that SAB was likely to announce an increased savings plan
(which it did on Friday).
* If both Altria and BevCo support a revised offer we think it will be hard for the
board to reject – This is especially the case as it is likely that Altria and BevCo
would be supporting an equity offer at a lower price than the cash offer. As we have
consistently said we don’t believe SAB has many defences, beyond pointing out its
growth prospects and savings programs.
* What happens next? There could be news at any time, and we do expect the two
sets of advisors will have talked over the weekend. By the Oct 14 deadline, SAB
could either accept an offer from ABI, or agree an extension, allowing talks to
continue, perhaps for a couple of weeks. We believe this is the most likely scenario,
even if BevCo hasn’t agreed to an offer by then, as otherwise SAB shareholders
would be at risk of seeing the recent upward move in SAB’s share price reverse.
However, if SAB neither accepts an offer nor agrees to an extension, ABI is forced
to either make a hostile offer, or walk away for a minimum of six months.
* M&A in HPC – In HPC, we think RB is the most likely to pursue game-changing
M&A in the near term, with Pfizer Consumer Health a credible target (See Now
What?). Our pharma colleagues think that Pfizer is ultimately a seller of that
business. Edgewell (the former Energizer Personal Care business) looks to us to be
a potential target for a strategic buyer once the poison pill expires (Dec 2015). While
we do not see an acquisition of the whole business providing a clear strategic fit
with any of the European companies we cover, some of Edgewell’s assets could
potentially be of interest to some of them.