SABMiller wants more for its brands, say insiders

SABMiller, the brewing giant and maker of such international brands as Peroni and Miller, and local brands like Trophy and Hero has rejected an unofficial bid proposal made by Anheuser-Busch InBev (AB InBev), the world’s largest brewer at £42.15 per share or $103.6bn / £68bn saying that the offer was too low.

“AB InBev needs SABMiller but has made opportunistic and highly conditional proposals, elements of which have been deliberately designed to be unattractive to many of our shareholders. AB InBev is very substantially undervaluing SABMiller,” said Jan du Plessis, chairman of SABMiller.

AB InBev has tried to get around SABMiller’s board by working directly with SABMiller’s two biggest shareholders, Altria and BevCo, who together hold 41 percent of the company’s shares. AB InBev’s deal with the pair is for them to continue as investors in the merged company by receiving part of their payment in unlisted stock, which could convert to AB InBev shares after five years.

AB InBev’s Chief Executive Officer, Carlos Brito, said: “This was designed with and for the two shareholders. There’s no transaction without them.”

He added that the firm worked with the biggest investors after several weeks of “no meaningful engagement” from the SABMiller board. AB Inbev disclosed that it had made two previous unofficial offers to SABMiller which had been rejected. The first offer was at £38 per share and the second at £40 per share. AB InBev made its latest proposal public ahead of a Takeover Panel deadline for a formal bid on October 14.

Following the latest offer of £42.15, Altria, one of the largest shareholders at SABMiller said that it “urged SABMiller’s board to engage promptly and constructively with AB InBev.”

SABMiller also made available the company’s sales figures as of Tuesday showing sales growth in Latin America and Africa, which was done to sweeten the deal.

If the deal between both companies were to go through, it would mean a broader geographical reach into fast growing emerging markets. AB InBev has a strong footprint in Latin America, while SABMiller’s home base is Africa.

AB InBev has said that SABMiller’s operations in Africa are particularly attractive part of the deal. The company said that it would establish a secondary listing on the Johannesburg Stock Exchange if the deal were to go through.

“The African continent would be a key driver of growth, building on SAB’s strong heritage in the region,” said Brito.

Meanwhile, in South Africa, the head of The Public Investment Corp., a South African state-owned pension fund manager that is SABMiller’s fourth-largest shareholder, said on Tuesday he opposes a takeover because it could create a brewer that’s too dominant, hurting consumers, as well as potentially removing the company from the Johannesburg stock exchange.

“Quite frankly I’m not in favor of it,” Chief Executive Officer, Daniel Matjila said by phone. “We may be creating some kind of a monopoly going forward which may have a serious impact on the global economy and beer market in general.”

Matjila declined to say which way the Pretoria-based PIC, which owns 3.14 percent of SABMiller, according to data compiled by Bloomberg, would vote on an offer should one be made.

However, if the deal were to sail through, there are likely to be some regulatory hurdles in some markets, particularly the United States, where SABMiller’s joint venture with Molson Coors could be problematic. Unless Molson Coors were sold off, the merged companies would control about 70 percent of the U.S. beer market, which is unlikely to pass through anti-competition hurdle.

Analyst say there may also be other smaller markets, like India and parts of Eastern Europe, where the merged company may be forced to shed some assets to meet local anti-competition regulatory requirements.

People close to the ongoing discussions think that SABMiller would be happier with a price closer to £45 per share, as SABMiller’s board feels it would represent a fairer price (value) for SABMiller. At such a price, SABMiller would be valued at £73bn, which would make it the largest merger this year. Talks are continuing.

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