AB InBev looks to win over SABMiller investors
At a beer conference in Arizona last year, a reporter asked Alan Clark whether it was feasible for the highly acquisitive Anheuser-Busch InBev, the world’s biggest brewer, to try to bid for SABMiller, the second largest.
“You could get the numbers to work,” said Mr Clark, then nine months into the job as SABMiller’s chief executive, with unusual candour for a corporate head. “There would be value loss and value destruction because they’d know that they’d have to sell the US though.”
Making the numbers work is exactly what will determine whether SABMiller shareholders agree to a takeover following the approach this week by Budweiser-brewer, AB InBev. The terms of a deal that would create a $275bn company, had not yet been disclosed on Thursday.
As it happens, AB InBev will not have to make too many shareholder visits because 42 per cent of the London-based company is in the hands of just two shareholders.
For AB InBev, convincing Altria, the US tobacco company that holds 27 per cent, and Colombia’s billionaire Santo Domingo family, which has 15 per cent, of the merits of the deal would be more than half the battle won.
AB InBev should not neglect the views of its own shareholders. “At today’s share price, this deal does not work for me as it won’t be that accretive. There will only be small gains to returns, which does not make a deal that worthwhile,” one of its top 50 investors said.
SABMiller has become a target for several reasons.
First is the M&A impulsion of the trio of Brazilian big shareholders in AB InBev — Jorge Paulo Lemann, Marcel Herrmann Telles and Carlos Alberto Sicupira — who favour takeovers as a driver of growth.
The three all have a background in private equity and are also the co-founders of 3G Capital Partners, the investment firm that has been buying up US food assets, such as Heinz and Kraft.
Second, AB InBev is already a big company with $45bn in annual revenues, so it needs a substantial acquisition to scale up further.
Such opportunities are rare. Of the next three largest brewers — SABMiller, Heineken and Carlsberg — SABMiller is the only one potentially available for sale.
Heineken is family-controlled and rebuffed a merger approach from SABMiller last year, while Carlsberg is protected by a foundation. The Danish brewer’s significant exposure to the volatile Russian beer market, which has hit profits, does not make it attractive to AB InBev.
Strategically, analysts believe SABMiller is a good fit for the Belgian-Brazilian brewer as more than 70 per cent of its sales are to emerging markets. This profile complements AB InBev’s similar skew towards the Americas.
Other than in the US and China, there is little territorial overlap of significance, which may partly explain why SABMiller has long been rumoured to be the object of AB InBev’s takeover intentions.
Timing has also played its part. Before confirmation of the approach, SABMiller’s shares were trading 21 per cent lower than last year’s high of 3768p which had been driven up in part because of AB InBev takeover rumours.
The stock has since drifted down in line with emerging markets downgrades, making the company more affordable to AB InBev and attractive, depending on its investment outlook.
“It may also be that the controlling shareholders of ABI believe that the emerging market sell-off is overdone, particularly when it comes to currency, and that SAB’s dollar earnings and hence share price, are artificially depressed,” said Trevor Stirling, analyst at Bernstein. “In short, now is a good time to buy high quality emerging market assets.”
AB InBev will try to extract significant synergies — Robert Ottenstein, analyst at Evercore estimates as much as $2bn — through a tie-up with SABMiller and the scale of the new brewing group would potentially give it greater purchasing power in the beer market.
“We don’t see how SABMiller can credibly fend off ABI’s approach in a way that adds much value to shareholders,” said Andrea Pistacchi, analyst at Citigroup.