AB InBev crafted its bid for SABMiller to ensure the target’s two largest shareholders got a lower price for their shares than other investors, as part of a plan to cut their tax bill. Instead, they’re on track to receive a premium.
Under the terms of AB InBev’s bid, SABMiller shareholders can choose £44 a share in cash or a mix of cash and stock that was valued at just over £39 a share when the terms were announced 13 October. Because AB InBev’s stock has gained 17 per cent to €117.35 since the agreement, the value of the share alternative has jumped to about £43.52 per SABMiller share, nearly eliminating the discount to the cash offer.
The shares that will be issued won’t be listed on any exchange for five years, and can't be traded or transferred until that period is up. By pricing the partial share alternative at a discount, and locking up the stock, the goal was to make that proposal unattractive to all but big shareholders Altria Group and BevCo, which want to avoid paying the capital gains tax that would come with accepting all cash.
AB InBev is willing to issue 326 million shares, enough to cover the demand from Altria and BevCo, but not much more. The higher AB InBev’s stock goes, the more alluring the cash-and- stock offer becomes to other shareholders.
“I don’t think it’s an issue yet, but if AB InBev’s share price reaches €130 or €140, it’s a bigger problem for Altria and BevCo because it’s a bigger premium on the cash offer,” Eamonn Ferry, an analyst at Exane BNP Paribas, said. “At the moment, the share offer is slightly more compelling but the five-year lockup will be an issue for most investors.” He forecasts that AB InBev shares might reach €136 in the next year.
Altria and BevCo, which own about 40.4 per cent of SABMiller, have committed to accepting the partial share alternative. AB InBev Chief Executive Officer Carlos Brito said on a conference call with reporters last month that the alternative had been designed with and for SABMiller’s largest shareholders. BevCo is a holding company for Colombia’s billionaire Santo Domingo family. AB InBev predicts the transaction will be completed in the second half of 2016.
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