Last week’s collapse in sterling may have wiped out most of the takeover premium in Anheuser-Busch (AB) InBev’s £45 a share payment for SABMiller’s South African investors. At R17.31 to the pound, the sterling-rand exchange rate on Friday was almost 18% weaker than the level that prevailed in November 2015, when AB InBev announced its £44 a share offer for SABMiller.
At the time, the offer represented an attractive, 22% premium on the pre-offer share price and was considered sufficiently generous to win shareholder backing.
At the time it cost about R22 to buy a single pound sterling, valuing the £44 offer at R968 per SABMiller share. As the pound went from strength to strength, the offer looked ever more attractive to rand-based shareholders. In May, SABMiller reached a high of R980 on the JSE, up from about R875 just after the offer in November.
However, the dramatic outcome of the Brexit referendum in June changed sterling’s trajectory. The currency went into free fall before recovering some ground in August.
One investor said at the weekend that if the Conservative Party had held its October conference two weeks earlier, SABMiller shareholders might not have approved the transaction.
The shareholders’ meeting on September 28 approved the offer overwhelmingly. Sterling’s collapse resumed after Brexit-related statements made at the conference that were regarded as extremely bearish.
Monday, however, is the day the £74bn transaction will be completed, which means it is Monday’s exchange rate that will determine the rand value paid to South African shareholders.
At Friday’s exchange rate, even the increased £45 offer for SABMiller was worth only R778 per share. It represents little change on the pre-offer R750 at which SABMiller was trading in October 2015.
The collapse in sterling will affect a large portion of SABMiller’s minority shareholders, who will receive cash payment for their SABMiller stock during the week. The recent shareholder register reveals UK-based investors held only 24.7% of SABMiller’s shares.
The collapse in sterling will also have left a very bitter taste in AB InBev’s mouth.
In a bid to protect itself from any possible strengthening of sterling last November, the giant brewer took out cover against its $100bn purchase at an exchange rate of $1.5267 to the pound. On Friday, sterling was trading at $1.245, which means ABInBev paid 28c per pound more than it needed to. It is equivalent to overpayment of $13bn.
Sterling’s collapse also makes the special offer provided to SABMiller’s major shareholders, Altria and Bevco, considerably more attractive. Altria and Bevco, which have a combined 41% stake in SABMiller are exchanging most of their holding for AB InBev shares.
The structure of their portion of the transaction resulted in them having very limited exposure to sterling.
Altria and Bevco did not vote at the SABMiller shareholders’ meeting called to vote on the ABInBev offer.
Meanwhile, on Monday, for the first time in 119 years, South African investors will not be able to invest in locally listed beer companies.
But on Tuesday they will be able to invest in AB InBev. Following approval from its shareholders for the takeover by AB InBev, SABMiller was recently delisted. On Monday, AB InBev will be suspended to accommodate the completion of the transaction. It will
re-emerge on Tuesday morning as the new ABInBev and its shares will be tradeable on the JSE. One share in the old AB InBev will be equivalent to one share in the new AB InBev, which will include SABMiller.
Meanwhile, news from the US is that a district judge has dismissed an antitrust case aimed at blocking the merger transaction. In December 2015 a group of US consumers filed a complaint alleging the merger would lessen competition and create a monopoly in the production, distribution and sale of beer in the US.
In February 2016, AB InBev and SABMiller filed motions to dismiss the case on the grounds that the complainants had failed to file a claim. Last week the district judge dismissed the case permanently.
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