Matthew Boyle
SABMILLER’S failure to erect a defence against Anheuser-Busch InBev by combining with Heineken has left the second-largest brewer even more vulnerable to a takeover by the industry leader.
Heineken said yesterday that it had rejected an approach from London-based SABMiller, an overture that intended to help fend off a possible bid for the Miller Lite maker by AB InBev, according to people with knowledge of the matter.
They said that SABMiller was assessing its next move, yet its options were now more limited and the ball was in the Belgian giant’s court to move forward with a long-speculated takeover.
Eddy Hargreaves, an analyst at Canaccord Genuity, said: “That SABMiller’s inorganic options have been so publicly lessened puts AB InBev in an even stronger position, should it choose to make a move on SABMiller. SABMiller shareholders may be even more likely now to welcome a bid.”
Karen Couck, a spokeswoman for AB InBev, declined to comment, as did Richard Farnsworth, the spokesman for SABMiller.
SABMiller shares surged as much as 13 percent in London yesterday, the most in almost 12 years, as speculation of an offer from AB InBev intensified. SABMiller closed 9.66 percent up at R668.91 on the JSE, off a high of R689.07.
The gain boosted SABMiller’s market capitalisation to more than £61 billion (R1.1 trillion), a valuation that would make a deal the industry’s biggest.
Shares of drinks companies from Guinness brewer Diageo to Carlsberg also advanced as the approach for Amsterdam-based Heineken fuelled excitement about the potential for more transactions.
Beer industry stocks, stoked by merger speculation, are trading at their most expensive levels in 10 years, based on forward price-earnings ratios, according to Nomura analysts.
While SABMiller could still seek other partners, such as Danish brewer Carlsberg, “the fact that SABMiller’s management seem so serious about the need to defend themselves does add credence to the AB InBev-is-going-to-buy-SABMiller story,” Mirabaud Securities analyst Jonathan Fyfe said.
AB InBev has spent close to $100 billion (R1.1 trillion) over the past decade to buy brews from Corona to Budweiser. Acquiring SABMiller would create a global beer behemoth, merging AB InBev’s strength in the US, Mexico and Brazil with SABMiller’s presence in Africa, China and Australia.
A bid would be complex, analysts say, possibly requiring divestitures of SABMiller’s joint ventures in the US and China to appease regulators. And AB InBev risked a cut to its credit ratings should it pursue a takeover, researcher Fitch Ratings said last week.
Still, “there are no insurmountable challenges” to the deal, Fitch added.
SABMiller chief executive Alan Clark said in January that the case could be made for a tie-up, even though it would probably require selling some assets in the US, the home of the group’s MillerCoors joint venture, to appease regulators.
One sign that a deal might be in the works is if AB InBev declines to renew a soft-drink bottling agreement with PepsiCo in Latin America.
AB InBev must give notice by next year at the latest if it does not want to continue with the agreement beyond 2017, at which point it automatically renews, according to Hargreaves.
An offer with some equity component would be more attractive to SABMiller’s two largest shareholders, Altria Group and Colombia’s Santo Domingo family, Morningstar analysts said. However it panned out, SABMiller was now “in play”, said Wyn Ellis at Numis Securities. – Bloomberg