Brewer AB InBev raises offer for rival SABMiller after sliding pound makes deal less attractive to investors

LONDON/BRUSSELS — Anheuser-Busch InBev raised its US$100 billion-plus bid for rival brewer SABMiller on Tuesday after a slide in the value of the pound following the Brexit vote made the offer less attractive for many investors, threatening to derail the deal.

SABMiller said its chairman talked with his counterpart at AB InBev on Friday about the offer in the light of exchange rate volatility and market movements, although they did not discuss the new terms.

The world's largest brewer will now offer 45 pounds a share for its nearest rival, an increase from the 44 pounds announced in October last year.

It also tweaked the terms of an alternative share-and-cash structure designed for SABMiller's two largest shareholders, raising the cash element by 88 pence a share.

The offer values SABMiller at around 79 billion pounds (US$103.6 billion). In November, when the original bid was officially launched, it was worth around 70 billion pounds, or US$106 billion based on exchange rates at the time. That original bid had since dropped to about US$100 billion.

Aberdeen Asset Management, with a 1.17 per cent SABMiller stake according to Thomson Reuters data, said the revised offer was still unacceptable, although analysts suggested the deal was now likely to go through.

SABMiller, which provisionally agreed the deal struck in October, said it had taken on Centerview Partners as a new financial adviser and would consult with Centerview and with shareholders before formally considering the revised offer.

The takeover is still awaiting regulatory approval in China. SABMiller shareholders would expect to vote on it after that.

AB InBev (ABI), which has hedged to cover the pounds initially required, said the revised terms were final. Under British law, this means the price is set. AB InBev could only change it by dropping the offer and waiting six months to make another.

Liberum analyst Alicia Forry said she believed the revised bid was likely to be successful by throwing a “small bone” to activist investors and shutting the door to further increases.

“The main thing from ABI's perspective is they don't want this to drag and if they engaged (activists) it would,” she said.

Bernstein Research brewing analyst Trevor Stirling said SABMiller's shares would probably drop to 41.50 pounds if AB InBev's takeover bid failed, adding that for AB InBev, an extra US$2 billion was only a modest deterioration of a deal that made strategic sense by adding attractive African and Latin American markets.

At 1035 GMT, SABMiller shares were down 0.5 per cent at 44.20 pounds. AB InBev's were up 0.9 per cent at 115.80 euros.

The changes come after a number of activist investors, such as Elliott Capital Advisors and TCI Fund Management, bought stakes in SABMiller and several shareholders voiced concerns at least week's annual general meeting that the cash deal was less attractive for many investors than before and, in any case, below the share-and-cash alternative.

The latter, designed exclusively for Altria and Colombia's Santo Domingo family who together own about 41 per cent of SABMiller, had been worth less than the all-cash option last year, but with the fall of sterling and a rise of AB InBev shares, has surpassed it since.

For a foreign dollar-based investor, the cash offer had dropped 12 per cent since the British referendum vote to leave the European Union on June 23. Meanwhile, AB InBev shares are more than 35 percent higher than October.

Aberdeen Asset Management said the revised offer undervalued the company and continued to favor SABMiller's two major shareholders, Altria and Bevco.

AB InBev said the share-and-cash offer value was now 51.14 pounds, so above the 45 pounds of pure cash, but the new shares offered would have to be held for at least five years.

“I wouldn't like to second guess what the activists were hoping for, but the increase is quite modest,” one SABMiller shareholder told Reuters.

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