SABMiller Board Expected to Discuss AB InBev Offer

By Tripp Mickle 

SABMiller PLC's board on Wednesday is expected to discuss the possibility of seeking new terms from Anheuser-Busch InBev NV on its roughly $108 billion takeover, according to a person familiar with the matter.

The board meeting was already on the calendar ahead of the company's annual shareholder gathering, which is scheduled for Thursday. It comes as SABMiller's deal faces increased pressure from investors who have watched the weakening pound disrupt the terms of the transaction.

Hedge funds including Davidson Kempner Capital Management and Elliott Management Corp. have bought shares in SABMiller in recent weeks. They have reported stock positions in SABMiller following last month's vote by the United Kingdom to exit the European Union, which sent the pound plunging.

The falling pound has raised questions with analysts about whether AB InBev might be pressured to renegotiate its roughly $108 billion offer for SABMiller.

When the deal was struck in November, AB InBev agreed to pay GBP44 a share for a majority of SABMiller. For 41.6% of stock, AB InBev created a partial-share alternative, essentially a combination of cash and unlisted stock, that translated into a lower per-share price of GBP41.85. The partial-share plan was designed to allow SABMiller's largest shareholders, Altria Group Inc. and the Santo Domingo family, to retain holdings and board seats.

However, because AB InBev's stock trades in euros -- which has risen 8.4% over the past month against the pound -- those shares have become more valuable. As of July 18, the partial-share alternative was worth about GBP49.63 ($65.47) or 13% more than the cash offer, according to Stifel Nicolaus & Co.

The difference between the all-cash and partial-share offers increases the likelihood that other shareholders besides Altria and the Santo Domingo family would opt for the more valuable alternative. It also raises the possibility that institutional investors will call on AB InBev to sweeten the cash offer.

It is far from guaranteed SABMiller will seek better terms for a deal that already has been signed -- or that AB InBev would agree to sweeten its offer. AB InBev has said it expects to close the deal in the second half of the year. It is still awaiting regulatory approval from the U.S. and China; regulators in Europe and South Africa have already signed off on the transaction.

Most institutional investors aren't in position to opt for the partial-share alternative because the unlisted shares can't be sold for five years. That would create a problem for funds that need to be able to liquidate assets if investors want cash returned.

The partial-share alternative's rising value also poses a risk for Altria. As part of the deal, the U.S. tobacco company would own about 10.5% and have two seats on the board of a combined AB InBev-SABMiller. That would allow it to continue to record income from the beer business through equity accounting practices, which contributes to its bottom line.

But if other SABMiller shareholders opted to take the partial-share alternative, reducing Altria's share to 9% and costing it a seat on the combined company's board, CLSA tobacco analyst Michael Lavery said Altria might lose its ability to record income from the beer business.

Write to Tripp Mickle at [e-mail]

(END) Dow Jones Newswires

July 20, 2016 12:59 ET (16:59 GMT)

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