SABMiller’s Jan du Plessis faces tough task on AB InBev bid
Chairman must balance the divergent views of his group’s two key investors
Jan du Plessis, chairman of SABMiller, only needed a few hours on Wednesday to turn down a £65bn offer for the brewer from Anheuser-Busch InBev, the Belgian-Brazilian producer of Budweiser beer.
AB InBev may be larger and famously acquisitive, but Mr du Plessis says the part-cash, part-shares offer “very substantially undervalues” a group he believes is the “crown jewel of the global brewing industry”.
Mr du Plessis reasons that SABMiller’s unique position as the largest brewer in Africa should be worth more.
Carlos Brito, chief executive of AB InBev, shares Mr du Plessis’s view on the importance of the world’s fastest-growing continent — though of course he disagrees with him on the bid price.
“Africa is key and will play a vital role in the future of the combined company. That’s a continent with a billion consumers,” says Mr Brito. “This combination is about growth, mainly.”
Despite being the world’s largest brewer by revenues and volume, AB InBev has virtually no exposure to Africa and is grappling with a slowdown in its two main markets of North America and Brazil.
Buying SABMiller, which was founded 120 years ago as South African Breweries, could help boost AB InBev’s revenues and expand its reach. The two brewers have little overlap other than in the US and China.
But the attractions of a deal are far less clear for Mr du Plessis, who for the second time in just a year finds himself fighting off a takeover attempt by an ambitious acquirer.
Last October, in his role as chairman of Rio Tinto, Mr du Plessis confirmed that the £45bn mining group had rejected an opportunistic bid from rival Glencore — a move that looks wise in hindsight.
Now, Mr du Plessis is fending off an even bigger bid. He and the majority of the board appear to have been driven by two main considerations in rejecting the offer: price and proposed deal structure.
AB InBev’s first two private offers of £38 and £40 a share were at the bottom end of the £39-£45 a share range that analysts say AB InBev could afford to pay.
The latest, public proposal is £42.15 in cash per share but it includes a shares alternative that makes the price average out to about £40 a share. That is “some way below what we would regard as a knockout bid”, says James Edwardes Jones, analyst at RBC Capital Markets.
Mr du Plessis also has to balance the divergent views of the two dominant SABMiller shareholders as well as look after the interests of smaller shareholders.
AB InBev appears to have structured the deal primarily with the interests of the two big shareholders in mind.
Both Altria, the US tobacco group, and Bevco, the investment vehicle of Colombia’s Santo Domingo family, would have to pay potentially hefty capital gains tax bills if they opt for cash. Taking shares in an enlarged group would allow them to avoid these taxes.
The share portion being offered by AB InBev equates to 41 per cent of SABMiller shares — almost the exact equivalent to the 42 per cent that the two big shareholders hold.
AB InBev’s Mr Brito says “the partial share alternative was designed with and for them, and we hope to have their support”.
Altria, which holds 27 per cent of SABMiller, said on Wednesday it was ready to accept the deal. But Bevco, which has a 14 per cent stake, rejected it.
The Santo Domingo group has not gone public with its reasons, but analysts said they were likely to be linked to price.
For Mr du Plessis, there is an additional wrinkle. Right now, the cash offer is worth more than the shares offer.
But if the board agrees a deal and then AB InBev’s share price rises, the shares option could turn out to be the better deal.
In that case it would look as if the SABMiller board had recommended a deal more favourable to Altria and Bevco than to the smaller shareholders.
Indeed, the discount between the value of the share offer and cash offer narrowed during the day once shares in AB InBev rose on the news of the terms.
Yet Mr du Plessis’ options are limited.
SABMiller could hold out for a higher offer. But Philip Gorham, analyst at Morningstar, said AB InBev was unlikely to be able to offer that much more. While the larger group has a long history of cost-cutting and extracting value from acquisitions, this particular deal may not yield as many synergies.
“The offer on the table from AB InBev is likely close to a final offer. We believe it represents good value for SABMiller shareholders,” he says.
Much depends on the position of the Santo Domingo family. As Mr Brito says: “There’s no transaction without them.”