It seems South-Africa-based brewer SABMiller (SAB) has squeezed every last drop out of larger rival - and now acquirer - Anheuser-Busch InBev. The two companies have agreed "in principle" on a £44 a share offer for the Peroni owner - the fifth price put forward - with a partial share alternative available for the target's two largest shareholders. That values SABMiller at £68bn and, if the deal moves ahead, it will be the third-biggest takeover in history.
The dominance of SABMiller's two largest shareholders isn't a new issue for would-be buyers. Between them, US cigarette maker Altria and BevCo, the holding company owned by the Santo Domingo family, own 41 per cent of SABMiller. But both groups have actively backed the latest proposal and look set to receive seats on the newly enlarged company's board.
Morningstar analyst Philip Gorham said the deal was "great for SABMiller shareholders" but added he wasn't surprised to see the deal structured this way. Under UK takeover laws, all shareholders must be given the choice to accept the same deal terms. In theory, all SABMiller's shareholders have the chance to take the cash and stock option (which brings the cash-per-share offer down to £39.03). But they'll also be offered the pure-cash deal of £44 a share, a choice which Mr Gorham dubbed a "no brainer". This way, SABMiller's shareholders net a generous 50 per cent premium to the share price prior to negotiations, while Altria and BevCo remain part of the ongoing company. It also helps Altria and BevCo avoid punitive tax charges by appearing to maintain their shareholding. Under UK law it won't represent a formal share sell-off and so nullifies a hefty capital gains charge. The discount on the cash part of the alternative offer is also less than the cumulative tax bill faced by BevCo and Altria by exiting the company completely.
If the deal falls apart - either due to competition hurdles or rejection by InBev's shareholders -SABMiller will receive a $3bn (£2bn) break fee. Those regulatory hurdles are not to be sniffed at either. The tie-up will create the world's largest beer company and AB InBev will have to offload SAB assets in the US and China to comply with competition standards. These businesses are mainly owned through joint ventures - thus suggesting a natural buyer - but Mr Gorham said such disposals help explain why SABMiller accepted £44 a share as the final offer price. Whispers of a £45 a share bid have circulated the market for some time but Mr Gorham said the "value leakage" risk - in other words struggling to incite a fair and competitive fight for excess assets - is likely to have prompted the eventual compromise.
Mr Gorham also labelled the deal's timing "crucially significant". AB InBev approached SABMiller - known for its strong position in emerging markets - as concerns mount over a possible slowdown in growth across these regions. But Mr Gorham believes it is this "wobble" in sentiment, and subsequent weakness in SAB's share price, which gave AB InBev motivation to strike. "They always knew they'd have to pay a premium for SAB," he says, "but no one wants to over-pay". Indeed, the relative underperformance in SAB's share price compared with AB's own suggests it was ripe for the picking.
