Analyzing Altria’s Response to ABI’s Bid for SABMiller



Anheuser-Busch InBev’s offer to SABMiller’s shareholders

While the partial stock option that we discussed in Part 2 is open to all SABMiller (SBMRY) (SAB.L) shareholders, Anheuser-Busch InBev (BUD) (AHBIF) (ABI.BR), or ABI, expects few shareholders to go for the option due to the lower implied valuation premium and lack of liquidity.

The partial stock option seems to have been made available in deference to the larger stakes held by Altria (MO) and BevCo, who may elect to participate in the benefits from the proposed combination.

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Altria’s support

Altria has already voiced support for ABI’S bid. “Altria supports a proposal of £42.15, or higher, with a partial share alternative and subject to finalization of terms, would be prepared to elect the partial share alternative,” Altria noted in a statement on October 7. The company also urged the board of SABMiller “to engage promptly and constructively with AB InBev to agree on the terms of a recommended offer.”

As we discussed in our earlier update, Altria’s support as SABMiller’s largest shareholder is vital. The company has held a stake in SABMiller since 2002. Currently, Altria owns about 26.6% of SABMiller, and it also derived more than $1 billion in dividend payouts from its shareholding last year.

The Altria angle

Altria already has a portfolio of alcohol assets. This is a way of diversifying away its interests in tobacco (XLP), which is experiencing declining sales in the US. The steady income stream from its investment in SABMiller, as well as the likely upside in a combined brewer entity, accounts for Altria’s support of ABI’s bid and for the partial share alternative offered by ABI.

Anheuser-Busch InBev has made it clear that there are a few preconditions before a transaction with SABMiller can be completed. These include “irrevocable undertakings” to support the proposed combination from SABMiller’s two largest shareholders, Altria (MO) and BevCo.

Altria constitutes ~1% of the holdings in the PowerShares S&P 500 Low Volatility Portfolio ETF (SPLV) and 0.6% of the holdings in the iShares Core S&P 500 ETF (IVV).


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