InBev sweetens offer to £67b in fourth attempt to win over SABMiller

Tensions between rival brewers have increased since it emerged last month that InBev had approached SABMiller about a deal that could create a colossus in the world’s drinks industry

SABMiller’s production line at Cerveceria Hondurena, Honduras; its shares fell 47p to 3,621p on Monday (EPA)

AB InBev has made a fourth improved takeover approach for rival brewer SABMiller in its battle to create a powerhouse that would produce one in three of the beers produced globally.

InBev, the brewer of Budweiser and Stella, said it could offer £67b, or £43.50 a share in cash, for the FTSE 100 company behind Peroni and Grolsch. This is 3.2 per cent higher than its last rejected bid of £42.15 a share, and 14 per cent above an initial £38 a share offer last month.

However, SAB shares fell 47p to 3,621p as analysts said they were not convinced the price is high enough to persuade the board and key investors to welcome it. “The last reaction from SAB was that the previous offer was significantly undervaluing it,” Morningstar’s analyst Phil Gorham said. “The latest offer is not a significant improvement.”

InBev’s fourth proposal again includes a partial-share alternative for 41 per cent of the stock, aimed at SAB’s two largest shareholders, the US tobacco group Altria and the Colombian Santo Domingo family (see box, below).

This too was sweetened, with the cash component rising from £2.37 to £3.56, making it worth about £38.83. So far, the Santo Domingo family have been silent on InBev’s offer, though Altria has backed the proposal in principle.

InBev has until 5pm on Wednesday to table a formal offer or walk away from SAB for at least six months under the City’s Takeover Panel’s rules.

However, if SAB’s board agrees, the pair could ask the panel for an extension while they carry out talks over a potential agreed bid. SAB’s board met on Monday night about the latest offer.

Analysts at Evercore ISI added: “We think the most likely scenario is the increased proposal brings SAB’s board more meaningfully to the negotiating table and SAB’s board will ask for an extension [to the deadline].”

Tensions between the rival brewers have increased since it emerged last month that InBev had approached SABMiller about a deal that could create a colossus in the world’s drinks industry.

InBev has accused its rival’s board of failing to engage meaningfully in negotiations, but the latter has argued that the previous offers undervalues the company. In a charm offensive in the City last week, SAB defended itself against the takeover, saying it would double the cost savings it had flagged for the next five years.

Institutional investors also came out behind the board’s decision to snub the previous offer, with Poland’s Kulczyk Holdings saying that it saw “strategic merit” in a deal, but the £42.15 proposal did “not reflect SAB’s standalone growth potential”.

Devan Kaloo, Aberdeen Asset Management’s head of global emerging markets equities, said on Friday: “The bid is opportunistic and Aberdeen will not support the current offer – AB InBev need to rethink their numbers.”

If the companies did tie-up, it would combine InBev’s dominance in Latin America with SABMiller’s Africa presence, where it is the market leader in 15 countries. It would also strengthen both their grips on the lucrative South American market.

It is likely a combined group would have to sell off major businesses in the US and China to get a deal past regulators.

Michael Hewson, the chief market analyst at CMC Markets UK, said the increased bid did not “appear to have inspired much investor confidence that we will see an agreement by the Wednesday cut-off date, if today’s share price reaction is any guide, as investors give the new offer a big ‘meh’.”

Key players: SAB’s major shareholders and what they want

Santo Domingo family/BevCo

A deal currently hinges on Colombia’s Santo Domingo family, which is SAB’s second biggest shareholder with a 14 per cent stake thanks to its sale of the South American beer group Bavaria to the London-listed brewer in 2005.

Unlike Altria, it did not come out in favour of the previous offer, and its two representatives on SAB’s board backed the other directors who rejected the approach.

Harvard-educated Alejandro Santo Domingo, who is engaged to the Duke of Wellington’s daughter, Lady Charlotte Wellesley, manages the family’s interests through the BevCo investment vehicle.

The family investments were previously run by Alejandro’s father, Julio, who died in 2011.

Shortly after InBev last week detailed its takeover approach, it was forced by the Takeover Panel to clarify that it “does not currently have the support” of the Santo Domingo family for its offer.

Altria

The US company behind Marlboro cigarettes is the largest shareholder in SABMiller with a near 27 per cent stake. This dates from its 2002 sale of Miller Brewing to SAB.

The company last week said it supported InBev’s proposal of £42.15 or higher, with a partial share alternative. It also urged SAB’s board to “engage promptly and constructively” with InBev to agree on the terms of a recommended offer.

Altria, which has around 9,000 employees, also said last week it “believes that a combination of these two companies would create significant value for all SABMiller shareholders”.

Public Investment Corporation

Wholly owned by the South African government, with the Minister of Finance as shareholder representative, PIC has a 3.42 per cent stake in SAB, which has ties with South Africa dating back to 1895. The brewer, known as South African Breweries until 1999, still has nearly 90 per cent of South Africa’s beer market and operates seven breweries there with brands including Castle Beer.

Before the sweetened approach, PIC – which manages more than $120bn (£78.2bn) in state-employee pensions – said that it backed the board’s decision towards InBev. SAB is currently one of the largest shareholdings in its portfolio and PIC has said it is keen to hold on to shares in the new business. InBev has sought to appease the South African government by promising to keep a listing in Johannesburg.