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.

Building the foundations

Every portfolio should be built on the foundations of several well-established large-cap stocks, to provide both stability and a regular income. British American Tobacco (LSE: BATS) and SABMiller (LSE: SAB) are two perfect foundation stocks. 

Both British American and SAB have established, defensive businesses that have proven themselves over time. What’s more, these two companies have put shareholder returns at the top of their agendas. As a result, British American and SAB have outperformed the FTSE 100 by 14% and 11% per annum respectively for the past 15 years including dividends. You’d be hard pressed to find returns like these elsewhere.

Unfortunately, with such an impressive record of growth behind them, British American and SAB don’t come cheap. British American and SAB trade at forward P/Es of 17.4 and 22.9 respectively and yield 4.3% and 2.2%. As these companies have proven that they are a safe haven in stormy waters, it could be worth paying the high price. 

Income and growth

With a backbone of defensive stocks in place, income is next on the agenda. Tate & Lyle (LSE: TATE) and Admiral Group (LSE: ADM) are two of the best income stocks around.

Admiral has paid out a total of £1.1bn to investors or around 90% of net income generated to investors via dividend during the past five years.

This trend is set to continue into 2015 and 2016. Analysts expect Admiral’s dividend payouts to total 89.5p per share for 2015 and 93.8p for 2016, equal to a yield of 6.1% and 6.4% respectively. The company currently trades at a forward P/E of 15.8. Including dividends Admiral’s shares have returned 19.2% per annum for the past decade. 

Tate’s returns are not as impressive as Admiral’s. However, the company currently supports a dividend yield of 5.5%, and the payout is set to rise in line with inflation for the next two years.

Tate’s earnings are expected to fall by 11% this year as the company has been struggling with some supply-chain issues. These issues are not expected to last into 2016 and City analysts believe that the group’s earnings will return to growth next year. Tate currently trades at a forward P/E of 14.9 and 2016 P/E of 13.6. 

Rapid growth 

My final share for success is Dixons Carphone (LSE: DC).

Dixons is a growth stock. After merging with Carphone Warehouse last year, Dixons’ earnings have surged a 46% over the past year. Management is planning to open four new stores each week across Dixons’ international footprint. Based on these plans for growth, City analysts expect Dixons’ earnings per share to expand at a compound annual rate of 8% through to 2017.

Dixons currently trades at a forward P/E of 16.3 and is set to support a dividend yield of 2% this year. 

However, as Dixons has a number of growth initiatives underway I’m inclined to believe that the company’s growth will surpass City expectations.

For example, the company is already ahead of its own target to achieve merger synergies of £80m by 2016/17, has launched a new mobile network and signed a deal with US telecoms firm Sprint, which could eventually see it open 500 stores in the US. With all these plans in place, Dixons’ future growth could easily exceed expectations. 

The post 5 Shares For Success: British American Tobacco plc, SABMiller plc, Tate & Lyle PLC, Admiral Group plc And Dixons Carphone PLC appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.