The proposed bid represents a 44% premium on SABMiller’s share price before AB Inbev’s interest became public, but it may not be enough to win over SABMiller’s board.

At 9.16am, SABMiller issued a statement pouring cold water on AB InBev’s latest offer. SABMiller said that the firm’s board had already agreed to reject a proposal at £42. This suggests to me that today’s £42.15 proposal might not be enough to swing a deal.

SABMiller’s board will now meet to discuss today’s proposal, after which a further response is expected. However, the firm’s share price has slipped back to under £37 following SABMiller’s announcement, suggesting that the market is pricing in another rejection.

What are the issues?

Based on SABMiller’s comments this morning, this deal faces two main obstacles.

The first is that SABMiller knows it has a strong hand, thanks to its crown jewel — a large share of the fast-growing African and Latin American beer markets.

SABMiller reported sales growth of 9% in Africa and 8% in Latin America during the first half of the year. It doesn’t need a deal, as chairman Jan du Plessis made clear in his comments this morning:

“SABMiller is the crown jewel of the global brewing industry, uniquely positioned to continue to generate decades of standalone future volume and value growth for all SABMiller shareholders from highly attractive markets.”

The other issue is that SABMiller’s board believes that at £42.15 per share, AB Inbev’s offer undervalues SABMiller.

According to SABMiller, a £42 offer only values SABMiller at 14.7 times earnings before interest, tax, depreciation and amortisation (EBITDA), based on earnings for the year ending 31 March 2015. SABMiller’s board claims that this valuation represents a discount to comparable transactions.

Today’s 15p increase on a £42 may not be enough, especially as SABMiller also has reservations about the partial share offer being included for the firm’s two largest shareholders, Marlboro owner Altria Group, and BevCo Ltd.

Don’t give up

I don’t believe that SABMiller shareholders should lose hope.

Despite the reservations of SABMiller’s board, the firm’s largest shareholder, Altria Group, has already indicated that it would back an offer of £42.15 or higher.

This could put serious pressure on SABMiller’s board to engage with AB InBev and tweak this latest proposal into an acceptable format. Under UK stock market rules, AB InBev has until 14 October to make a firm offer — so there’s still plenty of time.

Ultimately, I suspect that a deal is quite likely, so I wouldn’t sell SABMiller shares at the moment. A bigger profit could be in the pipeline.

Indeed, the current share price is around 12% below the value of AB Inbev’s latest proposal. Buying today could generate a quick profit, if a deal is eventually agreed.

The post Should You Sell SABMiller plc After New £68bn Proposal From Anheuser Busch Inbev SA? appeared first on The Twelfth Magpie.

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It’s easy for me to bet on a price tag of at least 4,000p a share, but there are a few reasons why you might do well to cash in today and invest proceeds elsewhere. 

Reaction 

SAB’s stock price has risen over 3% today as a bid from it rival could be imminent. SAB said on 16 September that “there can be no certainty that an offer will be made or as to the terms on which any offer might be made.”

“Shareholders are strongly advised to retain their shares and to take no action,” it added. Less than two weeks later, SAB now trades around the intra-day, 52-week high record that it hit on 16 September. 

Risks

A year ago, I argued that SAB was the most obvious takeover target in the beer industry, while AB InBev was the most obvious acquirer. Options are thin on the ground, so I reiterate that view — but I do not think a deal will happen at any price.

Equally important, we should consider the financing mix of any bid. 

SAB’s undisturbed share price is about 3,000p. The obvious risk is that the parties will not manage to agree a deal priced over at 4,000p, and then you’ll have to forego a very nice capital gain given that its current equity valuation is 3,700p — some 23% above the level that it recorded on 15 September. 

AB InBev became the largest brewer in the world, surpassing SAB, when InBev acquired Anheuser-Busch of the US for about $52bn in 2008. A premium of 27% was paid over the record high that AB had recorded in October 2002. 

Based on this element alone, a price tag of up to 4,600p seems about right, even though the net present value of synergies suggests a fair take-out price lower than 4,000p, according to my calculations.

The interests of the seller and those of the buyer must be aligned, of course, but AB InBev really needs emerging market exposure, and it may bid up to secure the assets that it needs. So, say that a bid north of 4,000p will surely emerge. 

Two Options

You have two options now: you forego any additional upside potential and take cash to get rid of your holdings right now. Alternatively, you have to be prepared to become a shareholder in AB InBev, betting on the chances of success for the combined entity, as well as taking some additional currency risk if you are a UK-based investor — the deal, which could value SAB north of $100bn, will likely include a significant equity portion (my best guess would be up to 40% of the total value of the acquisition).

A source in the City recently commented: “How could this possibly make it through antitrust? Will ABI just take the regulators on a wild bender?“

Consider that when AB InBev was created it flipped several assets to private equity and trade buyers to preserve its credit rating — some of those assets were later bought back by the seller. Now, if the deal goes through this round of negotiation, I would expect disposals in North America, but it is hard to predict how regulators worldwide will react to the biggest takeover of a British firm. Divestment risk is another factor we should take into account.

The post Are SABMiller PLC Shareholders About To Get 4,600p A Share From Anheuser Busch Inbev SA? appeared first on The Twelfth Magpie.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Should UK investors stick with the FTSE 100 firm or look overseas to alternative heavyweight brewers Heineken (NASDAQOTH: HINKF.US), and Budweiser and Stella Artois group Anheuser Busch Inbev (NYSE: BUD.US)?

Last week, SABMiller announced that finance chief Jamie Wilson had “tendered his resignation for personal reasons” and “steps down from the Board with immediate effect”.

The news came as a shock to industry watchers, although, with hindsight, there was perhaps a whiff of something in the air three weeks ago when Wilson exercised an option to purchase company shares and immediately sold the lot for a net profit of £390,318. His previous practice on such occasions had been to sell only enough shares to cover tax liabilities and suchlike.

SABMiller chief executive Alan Clark said: “I am saddened by Jamie’s departure. He has been a huge support to me over many years, first in Europe and then over the past several years as CFO”. Indeed, Wilson has been a key figure in the success of the world’s number two beer group, which today trades on a rich valuation: 21.6 times forward 12-month earnings at a share price of £36.

The principal executive directors at Heineken and Anheuser Busch Inbev (AB Inbev) have been with their respective firms for 35-plus years, and carrying out their chief exec and finance boss roles for a decade or more.

Heineken, the world’s number three beer company, trades on a forward 12-month P/E of 19.7 at a current share price of €67.22 (in Amsterdam) and $38.63 (in New York, where two Heineken US “ADRs” represent one ordinary Heineken share).

World number one AB Inbev — whose turnover exceeds that of Heineken and SABMiller combined — trades on a P/E of 22.4 at a current share price of €107.95 (in Brussels) and $123.57 (in New York).

It’s clear, then, that while there’s some variation in the P/Es, all three companies are very highly rated (the long-term average P/E of the FTSE 100, for example, is just 14). To put the current ratings into further context, when I looked at the brewers back in October 2011, the P/Es were: SABMiller 15.3, AB Inbev 13.3 and Heineken 11.9.

So, we’ve seen a hefty re-rating of the whole sector, with SABMiller benefiting a little less than its rivals.

Why are the shares of these companies currently so in demand with investors? Well, the 10% or so annual earnings growth expected from them in the next couple of years looks very attractive at a time when a lot of industries are finding growth hard to come by. Also, it appears prices have been bid up on the potential for M&A activity in the sector.

Last September, SABMiller made a takeover approach for Heineken, which was rebuffed in no uncertain terms, with the controlling Heineken family making clear its intention to “preserve the heritage and identity of Heineken as an independent company”. Heineken’s stance rekindled what has long been mooted as the obvious megadeal in the sector: namely, for AB Inbev to swallow SABMiller.

Putting it all together, I’m not convinced UK investors have much to gain from deserting the FTSE 100 brewer for one of its overseas-listed rivals at this stage. All three companies are highly rated, and there appears little prospect of their share prices appreciating much beyond the rate of earnings growth, because their P/Es surely can’t go a great deal higher.

SABMiller looks the one company that could give its shareholders an exceptional return from here, purely on the basis of a takeover bid. Boardroom upheavals often provide a fertile environment for an approach, and the shock exit of SABMiller’s finance chief might just be a catalyst for AB Inbev to swoop.

I’m not going to be buying SABMiller shares on the hope of a bid, but if I were already a shareholder, I think would be happy to stick with my investment.

The post Which Global Beer Giant Is The Best Investment: SABMiller plc, Heineken N.V. Or Anheuser Busch Inbev SA? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.