Financial implications of proposed ABI offer to acquire SABMiller
■ Estimate changes: We lower our ABI FY16-17 EPS by 3-5% as we factor
in a worse near term outlook in Brazil and remove our previous share
buyback assumption. For SABMiller, we raise our EPS estimates by 1-4%,
as slightly weaker FX is more than offset by higher cost savings
(announced on the 9th October as part of its initial defence) – ABI has
indicated that these savings are not incorporated in its $1.4bn cost synergy
target.
■ Financial implications of the proposed transaction: ABI's share price
move following the proposed offer announced on the 11th November now
implies that the partial share alternative offer is now at parity to the cash
offer versus a 5% discount. The headline EV/EBITDA multiple of the
proposed transaction is c18x (or 15x post synergies) after factoring in the
agreed disposal of SAB's 58% share in the MillerCoors JV and the global
Miller brand to Molson Coors. The cost synergy target of 'at least' $1.4bn
represents c850bps of SABMiller's consolidated net revenues.
■ The proposed transaction is c16% EPS accretive by year 4 based on ABI's
cost synergy target, cost of funding and announced asset disposals. In
euro terms, ABI's share price is up 25% since the 14th Sept (last day prior
to news reports of a potential offer for SAB), a 5% outperformance against
its European consumer staples peer group.
■ Balance sheet considerations: ABI's pro-forma net debt/EBITDA rises to
3.9x in FY17E (the first full year after closing), and de-levers by 0.4-0.5x
per annum, without factoring in any cashflow synergies, which
management has alluded to but not quantified.
■ Regulatory and contractual hurdles: Following the MillerCoors disposal,
ABI's management has said it will shift its focus to resolving any potential
regulatory hurdles and contractual agreements with SABMiller's associates
& JVs and other strategic partners – These include China Resource
Enterprises, Anadolu Efes, Castel and The Coca-Cola company, which we
estimate represent c26% of SAB's EBITDA (including share of associates
& JVs, excluding MillerCoors).