SABMiller told employees to put integration efforts on hold this week

SABMiller told employees to put integration efforts on hold this week

"If you Brexit, you fix it," was the joke doing the rounds after the UK voted to leave the European Union. But is it too late to fix Anheuser-Busch InBev's takeover of SABMiller

According to reports this week, the transaction is in danger of becoming the first major casualty of Brexit as the Sterling's dramatic fall against world currencies in the wake of the vote turns the mega-bucks deal AB InBev agreed for the Miller brewer back in November into one that some claim is not mega enough. Here's a just-drinks round-up of what has happened so far.

The background

After the Brexit poll, SABMiller shareholders who chose a simple cash remuneration for their stakes cast envious eyes at SAB's two biggest shareholders, US tobacco company Altria and BevCo. That's because they had opted for the specially-created partial share alternative - a combination of cash and stock in the merged company - and were therefore set to gain a premium now that Sterling was down.

Outsiders, meanwhile, saw something else - opportunity. A number of activist investors bought positions in SABMiller and agitated for a sweeter deal from AB InBev, using the seemingly unfair premium as leverage.

On Tuesday, that wish was granted and AB InBev revised its deal, raising its cash consideration offer by GBP1 per share. The partial share alternative was changed to an equivalent value of GBP51.14 per SAB share. Under the terms of the partial share deal, investors must hold on to the stake for a minimum of five years.

The reaction

On Wednesday, just-drinks reported that SABMiller employees put integration plans on hold, possibly so SABMiller management can give due consideration to pulling out or accepting the new deal. And it may be an either/or situation - AB InBev's offer was marked "final", which according to analysts means it is unable to raise the offer again under the Takeover Code.

The past few days have seen a flurry of speculation over whether SABMiller will or won't renege on the agreement with AB InBev announced back in November, though it is worth pointing out that if it does it will be liable to pullout penalties.

A token gesture?

As stated above, the new offer is certainly an improvement on the original offer. However, some analysts have said it still amounts to loose change to AB InBev. According to Bernstein, the cash increase comes out at an extra US$2bn at spot exchange rates, out of an initial deal value of US$107bn back in November.

"From AB InBev's perspective, these revised deal terms do not materially change the deal economics," Bernstein said.

Fallout

According to reports, one of SABMiller's top ten shareholders had rejected the new terms within hours of it being tabled. Aberdeen Asset Management said the sale "remains unacceptable".

Meanwhile, commentators weighed in on the merits of the sweetener. Firmly on the against side was Bloomberg's Gadfly column, which said SABMiller should walk away. "The world has changed since SABMiller agreed to be bought by its Belgian counterpart last November," it said, highlighting that the new terms would only be a 12.5% premium. "Thirty percent is the usual minimum for a takeover."

It concluded: "The [SABMiller] board should ask itself whether it would recommend this deal if it landed today. The answer is surely no."

FT's Lex column said SABMiller shareholders were emboldened to push for more money as AB InBev "has invested too much time and capital to walk away now". But not before Lex held its metaphorical nose against the whiff of greed emanating from investors looking for a fast buck out of a difficult situation. "To borrow a recently resurrected phrase, the takeover of SABMiller by AB InBev could plausibly be described as the 'unacceptable face of M&A'," Lex wrote.

Analysis

As this is a financial market-based problem for AB InBev, and very little to do with the alcohol industry, what do the money men make of it all? As AB InBev released its H1 results today, and secured regulatory approval from China, analysts who write about the brewer agreed the deal will still go through.

Stifel's Mark Swartzberg said that the recent pause in integration work by SABMiller was not a sign the company was considering changing its mind on the deal. "Rather, we believe it is a symptom of fiduciary duty." Swartzberg also said it was unlikely that AB InBev would up its offer by less than what it thinks it needs to get enough shareholders onside.

Elsewhere, Exane BNP said it is unlikely the SABMiller deal will fall through, while Bernstein continued to believe the deal made sense for AB InBev.

So all in all, the past week's intrigue has been a kind of takeover turbulence - uncomfortable, but nothing that will bring everything crashing down.

After all, in a deal this big, there's bound to be a few bumps along the way.

Expert analysis

Anheuser-Busch InBev NV in Alcoholic Drinks (Belgium)

Anheuser-Busch InBev NV in Alcoholic Drinks (Belgium)

Anheuser-Busch InBev NV has an extensive strategic policy having just bought the American company SABMiller in 2015....read more