Bud almost has the SAB keg tapped

October 7, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Anheuser-Busch InBev’s cash offer for SABMiller is robust. While the UK brewer has rejected the $99 billion approach from its Belgo-Brazilian peer, and has sizeable shareholder support, it is hard to fight the case for putting the two together. MegaBeer is almost here.

There is a lot still to be tied down. Most critically, the SAB board needs to agree. The Budweiser brewer has made that a pre-condition and SAB reckons the offer is “very substantially” under-fermented. The deal structure – it is effectively in two tiers – may also create problems. Shareholders can either opt for 42.15 pounds per share in cash, or a mixture of stock and cash with a nominal value, AB InBev reckons, of 11 percent less. As SAB points out, in a deal that could take many months to complete, the relative values of the different packages could change, or even reverse.

Still, the deal is cleverly designed. Some shareholders – notably the 27 percent block owned by U.S. tobacco manufacturer Altria and, potentially, the 14 percent Colombian Santo Domingo clan – may be happy to accept inferior terms if they avoid potential tax bills from selling out for cash. While Altria has given provisional approval, the Colombians are so far sticking with the board. Other shareholders, meanwhile, might like to retain exposure to the enlarged King of Beers, but flinch at the fact the stock offered will be unlisted and subject to a five-year lockup.

To proceed, shareholders on both sides may want to know the size of likely synergies. They may also want to know what debt the new group might carry and how the valuations compare with other deals for similar companies with similarly powerful market positions. These important details, as yet, are unspecified.

Since Anheuser’s Oct. 7 terms are not final – and Altria has clearly expressed the hope that the offer will be improved – Budweiser may have to find more cash, and offer more of its shares, to get this deal done. But it’s likely that Budweiser will eventually overcome the hurdles that stand in the way of successful execution.

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