Altria and Other Elephants in the Room during a Potential ABI-SABMiller Deal

The buzz around Altria (MO)

As we discussed in the last part of this series,Anheuser-Busch InBev’s (BUD) (AHBIF) (ABI.BR), or ABI’s, proposed acquisitionof SABMiller (SBMRY) (SAB.L) could come at a hefty premium. That’s partly due to the benefits that will likely to accrue to ABI due to scale. On a pro forma basis,ABI-SABMiller would become the most dominant player in the beer industry, with a market share over 2x larger than its next two rivals (see Part 2), according to Euromonitor International’s market share stats.

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Altria stake

Secondly, there’s the Altria factor. Altria Group (MO) owns about 27% of SABMiller. Based on market cap stats as of September 21, that’s about 23% of Altria’s market value. Altria had originally acquired a 36% economic interest in SABMiller in 2002, when it’s wholly-owned subsidiary Miller Brewing Company merged with South African Breweries.

Altria is reportedly consulting with investment bankers like Credit Suisse and Perella Weinberg Partners on the potential deal between ABI and SABMiller. ABI reportedly approached Altria about selling its stake in SABMiller before making its intentions known to the SABMiller board. Altria has said that it would consider the deal if the terms are attractive enough.

As SABMiller’s largest shareholder, Altria would need to support the ABI proposal in order for the acquisition to materialize—particularly if ABI prefers to pursue a friendly deal.

Heineken factor

Last year, SABMiller’s proposed takeover of Heineken (HEINY) (HEIA.AS) was rebuffed, as the family-controlled company was keen to retain its independence. The deal may have been an attempt by SABMiller to gain scale and fend off acquisition overtures by ABI itself. Hence, Altria’s support and significantly large share in SABMiller becomes all the more important to ABI.

Altria constitutes 5.6% of the portfolio holdings in the Consumer Staples Select Sector SPDR Fund (XLP) and ~1% in the iShares S&P 100 ETF (OEF).

The next part of this series, we’ll discuss the returns Altria has derived from SABMiller over the years.