“We married for beauty, not for money,” the head of the Santo Domingo clan said when he sold the family’s brewing business to SABMiller in 2005, collecting a 14% stake in return. That remark was given an airing here last week to suggest that maybe the Santo Domingos would not rush to jump into bed with Anheuser-Busch InBev to create the unlovely Megabrew monster.
So far, the Santo Domingos have indeed declined to switch partners. They are backing the SAB board’s view that a £65bn takeover offer “very substantially undervalues” the company. Is romance still alive?
Probably not. More likely, the Santo Domingos are making a few hard-headed calculations. First, SAB has been a terrific investment. The Colombians took their SAB stock when it was worth 900p and they have more than trebled their capital value in a decade, as well as enjoying an ever-stronger stream of dividends. You would want to be paid handsomely to part with an investment like that.
Second, there is every chance that SAB can continue its winning run. The group is so strong in Africa – which is why AB InBev wants to buy it – that a couple of decades of growth should be guaranteed. There are always upsets in emerging markets, as now, but multibillionaire owners can afford to take a long view.
Third, AB InBev’s offer isn’t generous. Carlos Brito, its chief executive, argues that SAB’s board “should” recommend an offer at a 44% premium to the pre-bid share price. But he’s referring to the value of the cash offer of £42.15. The Colombians are being offered a share alternative at £37.49, which is hardly compelling when you remember that SAB was trading at that level as recently as March. Brito, sounding furious, protests that the share alternative was “designed with and for” the Santo Domingos. But it looks as if he overlooked the critical component in the design – the actual value of the paper.
Altria, the Marlboro cigarette folk with 27% of SAB, take the opposite view and have aligned themselves with the bidder. The weight of that 27% means AB InBev is the favourite to win if it improves its terms by, say, 8%-10%. The Santo Domingos, in truth, are probably holding out for AB InBev’s improved and final offer.
A bid with a headline value of £45 a share, with the share alternative increasing in tandem, may be the level at which resistance crumbles. Will AB InBev go that high? SAB’s shares were flat at £36.03, suggesting this deal is finely balanced – it looks a 50/50 call.
Members of the beer-drinking classes, though, should hope that romance really is alive and the Santo Domingos act as an insurmountable obstacle. AB InBev’s vision of “the first truly global beer company”, with bland Budweiser spread to every corner, is depressing and charmless. This deal, an attempt to grab a third of the market, is straightforwardly anti-competitive; and the claim that cost-cutting Megabrew would improve choice for consumers is laughable.
The fruits of Dave Lewis’s labour
Boasting about your fruit and veg has become a habit among supermarket bosses. Last week, Mike Coupe at Sainsbury’s was warbling about his ripe avocados; on Wednesday, Dave Lewis at Tesco banged on about his extra large blackberries, apparently to illustrate innovation in the aisles. Maybe it is a distraction technique. It was odd, for example, to hear Lewis talk about “sustained improvement across a broad range of key indicators” even as Tesco’s first-half profits more than halved.
But let’s not be too churlish. On arrival a year ago, Lewis had a choice. He could have launched a rights issue to fix the balance sheet and provide ammunition for a sharp attack on rivals. Instead, he declined a cash-call and took an incremental approach to improving prices and products. It was the least painful route for shareholders – provided it worked.
At the moment, the evidence suggests it is working. Like-for-like sales are still falling, but not like they used to. The harder trick, of course, lies ahead: improving profit margins, not to the greedy 5% of old, but to 3%-4%. But Lewis has completed his first lap without a stumble.
Call the O2-Three deal Of
Sharon White, the head of Ofcom, has no formal powers to kill the proposed merger between O2 and Three, since the European commission will decide. But she put a large dent in the deal on Wednesday night by arguing that consumers suffer when the number of national mobile operators reduces from four to three, which would be the effect of an O2-Three combo.
She also happens to be right, to judge by evidence elsewhere in Europe. Her view that “competition, not consolidation, drives investment and delivers lower prices” also chimes with common sense. The deal should be blocked.
