(Reuters) — Anheuser-Busch InBev (ABI.BR), the world’s largest brewer, launched an improved bid for SABMiller (SAB.L) on Wednesday, offering just over 68 billion pounds ($104 billion) for its largest rival to extend its reach into Africa and other markets.
The company said in a statement it would pay 42.15 pounds in cash per SABMiller share, having already made two prior offers at 38 and 40 pounds.
AB InBev said it believed the offer would be attractive to SABMiller shareholders, adding it was disappointed the UK-based company’s board had rejected both previous approaches.
In reaction SABMiller said its board would meet to consider the latest proposal as soon as it could but said it noted the cash offer is only 15 pence a share higher than an informal 42-pound proposal made “and rejected” at a meeting on Monday.
SABMiller Chairman Jan du Plessis described his company as “the crown jewel of the global brewing industry”.
“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,” he said.
SABMiller shares were up 1.3 percent at 36.68 pounds by 0427 EDT, when AB InBev’s were 1.4 percent higher at 99.45 euros.
AB InBev is also offering an alternative to the cash offer of partial payment in shares, limited to about 41 percent of SABMiller stock and expected to be taken up by the British brewer’s major shareholders Altria (MO.N) and the Santo Domingo family, who together own 40.6 percent of the company, according to Thomson Reuters data.
Under this offer shareholders would get 2.37 pounds a share in cash plus 0.48 special unlisted AB InBev shares which are convertible into ordinary AB InBev stock after a five-year lock-up period.
• › AB InBev says expects to have BevCo support for SABMiller deal
Assuming AB InBev does pay for 41 percent of SABMiller with this partial unlisted shares and cash offer alternative (PUSCA), SABMiller said this would imply an overall price tag of just 65 billion pounds, based on AB InBev’s closing share price on Tuesday.
AB InBev said it expected most SABMiller shareholders would accept the all-cash offer and could re-invest their proceeds in its listed ordinary shares if they wanted to maintain a holding.
Top shareholder Altria, the tobacco group which has 26.56 percent of SABMiller, promptly said it supported the bid and would be prepared to opt for the share alternative.
AB InBev’s chief executive, Carlos Brito, told a conference call that he also expected support from the Santo Domingo family, which holds a 13.9 percent stake through their company BevCo.
AFRICA THE PRIZE
If the bid is successful the merged group would be a brewing colossus making nearly a third of all beer consumed worldwide, with analysts seeing it as the end-game for the industry’s consolidation as the big four – AB InBev, SABMiller, Heineken (HEIN.AS) and Carlsberg (CARLb.CO) already brew over half of the world’s beer.
It would add Africa and certain Latin American and Asian breweries to AB InBev’s extensive presence across the Americas and add SABMiller’s Peroni, Grolsch, Pilsner Urquell and other international brands to AB InBev’s existing line-up which includes Budweiser, Stella Artois and Corona.
Africa is expected to see a sharp jump in the legal drinking age population in the years ahead as well as increased beer consumption among a fast-growing middle class. In western Europe and North America beer volumes have steadily declined in the past two decades and U.S. consumers in particular have shifted to craft brews made by independent players.
“We believe Africa in particular will be a key driver for the joint company in the future,” Brito said.
AB InBev also said it intended to establish a secondary share listing and regional headquarters in Johannesburg.
The company, partly controlled by 3G Capital, a private equity fund run by a group of Brazilian investors, has a strong track record for takeovers and keen cost-cutting thereafter but Brito declined to say what potential synergies a SABMiller deal might realize.
He did say, however, that he remained confident that the company could put together financing for a bid. According to banking sources, it has asked banks to underwrite $70 billion in debt.
Analysts see this merger as the end-game of consolidation in brewing with the big four – AB InBev, SABMiller, Heineken (HEIN.AS) and Carlsberg (CARLb.CO) – already present across the globe and brewing more than half of the world’s beer.
($1 = 0.6546 pounds)
(Additional reporting by Robert-Jan Bartunek in Brussels, Aastha Agnihotri in Bengaluru and Martinne Geller in London; Editing by Gopakumar Warrier and Greg Mahlich)