SABMiller Rejects AB InBev $100 Billion Proposal, Saying It is Too Low

When Anheuser-Busch InBev NV’s, the maker of Budweiser, provided SABMiller the maker of Miller with a $100 billion takeover proposal, the company rejected it on the basis of it being too low. The company’s biggest shareholder was in support of the proposal, but SABMiller’s opposition to the decision has created conflict between the brewer and its shareholder.

AB InBev’s takeover proposal included two tiers where they would pay $64.81 per share in cash for the stock. The price is 44% above SABMiller’s closing level on September 14, which was one day before speculation about a takeover made headlines. AB InBev proposed they would pay $57.61 per share in cash and stock held by the two largest shareholders of SABMiller.

For two weeks, both companies met behind closed doors to discuss the deal and come to an agreement. It was only on Wednesday, when the takeover amount to acquire SABMiller was announced. If a deal is struck, the world’s two biggest beer producers would come together. A merger of this magnitude will create an empire, holding on to the number one or two positions in the world’s largest beer markets. In the history of mergers, this takeover would become the fourth biggest merger of all time.

According to RBC Capital Markets analyst James Edwardes Jones, “[This is not] ABI’s concluding proposal, but it is likely to put pressure on SAB’s management to engage [to discuss] formal proposition to discuss.”

Altria Group Inc. holds a 27% stake in SABMiller, making them their largest shareholder. They were the ones to urge SABMiller to discuss the proposal with AB InBev immediately. However, this was not the first proposal given by AB InBev that SABMiller rejected.

Previously, AB InBev proposed $58.39 per share and 61.47 per share, but SABMiller rejected both of them. According to takeover laws in the United Kingdom, AB InBev has until October 14 to produce a formal offer or walk away from the deal. Under the law, if a company chooses not to bid, they can make another proposal after six months.

SABMiller’s board, which did not include members of Altria, released a statement saying that the recent proposals undervalue their company. Carlos Brito, the Chief Executive Officer of AB InBev said, “[…] after a couple weeks trying the private route we didn’t get any meaningful engagement from [SABMiller] and with the deadline approaching we felt it was important for SABMiller shareholders to […] look at our proposal.”

Jan du Plessis, the Chairman of SABMiller, said that AB InBev have made less than satisfactory proposals that contained conditional and opportunistic elements that did not appeal to their shareholders.

For several years, speculation about a takeover of SABMiller has made the rounds, but nothing was confirmed, until now. The talks of a takeover came about due to slowing economies in markets like Brazil and China. SABMiller’s shares dropping by 20% also played a role.

AB InBev is determined to strike a deal with SABMiller saying that in the past, they have completed big takeovers and have met goals it had established for the deals. The company is willing to provide shareholders, who own 41% of the company, with the option to select the lower payout. The acceptance of some stock would lower the tax rate and the price AB InBev would pay.

Freshfields Bruckhaus Deringer LLP and Lazard Ltd. are the advisors for AB InBev while Morgan Stanley, JPMorgan Chase & Co., and Robey Warshaw LLP are advisors for SABMiller, advising them on this potential deal.