The temptation is to think that, just because a deal has been rumoured for ages, it’s bound to happen. In the case of Anheuser-Busch Inbev’s plan to buy SABMiller to form a $275bn brewing colossus, most of the City seems to have rushed to that conclusion.
The “MegaBrew” is likely to come into being, the analysts almost all agree, as they draft their debt and leverage calculations and price up the parts of SAB that AB Inbev would be obliged by competition authorities to sell. The arithmetic works if SAB rolls over at about £39-£44 a share, runs the general thinking.
Maybe they’re right, and maybe that’s the way the plot will run. Ultimately, though, most of the power lies in only two hands – Altria, spun out of the old Philip Morris, which owns 26% of SAB; and the Colombian Santo Domingo family, which has 14%.
Both parties’ thinking is a complete mystery to outsiders. But one can make a few points. First, Altria and the Santo Domingos have been long-term holders of SAB and showed no inclination to reduce their holdings when the share price reached £37 in March.
Before AB Inbev made its approach, the price had slipped to £30 because of the wobbles in emerging markets. But the two big investors may be happy to bet that China and Asia will bounce back in short order, restoring SAB’s value. In that case, even an offer of, say, £44 a share, wouldn’t look terribly generous from a long-term perspective – the takeover premium would be a miserly 19% if one takes £37 as the ‘base” price.
Second, if AB Inbev’s offer includes a heavy helping of its own shares – the most likely formula – Altria and the Colombians would want to be confident that the acquirer can make the purchase work. AB Inbev has a superb record as a buyer, of course, but there is equally an argument that a takeover of SAB would be one drink too many; the regulatory hurdles alone make it complex. Maybe, the two big shareholders might prefer SAB’s lower-risk model.
Third, Altria and Santo Domingo might salivate at AB Inbev’s potential cost-savings but conclude the deal is best done at a later date. It would be a reasonable argument if you believe SAB’s portfolio of businesses in emerging markets offers better medium-term growth.
To repeat: until AB Inbev puts its cards on the table, everything is guess-work. But, on the face of it, there is no reason for SAB’s investors to fold for less than £45 a share, which may be more than AB Inbev is willing to offer. Pfizer/AstraZenceca, remember, was “inevitable” until it wasn’t.
Strong language by City standards
Naughty, naughty. Glencore committed “a serious breach of shareholder protection principles,” in this week’s £1.6bn placing, says the Investment Association and the National Association of Pension Funds, the UK’s two big fund management bodies.
The language is strong by City standards, rightly so. First, so-called pre-emption rights – designed to protect shareholders against management teams who might try to issue shares to their chums – are important.
Second, Glencore knew what it was doing. In May, the company won permission to issue up to 9.99% of its share capital without applying pre-emption rights, but only under specific circumstances – if making an acquisition or funding a specific investment. In the event, Glencore needed the money to reduce borrowings but simply announced it would ignore what it had been agreed because it was “in the interests” of the company.
As it happens, Glencore’s probably had a half-decent argument, if only it had been bothered to make it formally. It needed the cash quickly and delay could have been costly, thus a placing was better than a rights issue. And, it might be argued, nobody seriously lost out via the placing because the new shares were issued within a whisker of the market price.
But saying that you’ll do one thing in May, and then doing another in September, should be a serious no-no for a FTSE 100 company. Surely the shareholders should get a say on what’s in a company’s best interests.
Thus the IA’s and NAPF’s other beef is that Glencore didn’t pick up the phone and make its case. “Most importantly, there is no evidence of any suitable consultation with existing shareholders,” they say. “This sets a very damaging precedent for market practices.”
Fair comment. Ultimately, however, the moral of the tale is depressing: fund managers can scream and shout about their pre-emption rights but, on this occasion, the only penalty is an angry press release.
Every Lidl bit helps
Almost a third of independent shareholders last week voted against the reappointment of Keith Hellawell as chairman of Sports Direct. The doubters probably won’t be reassured by an interview in Thursday’s Daily Mail in which Hellawell disputes that it his job to hold Mike Ashley, founder and 55% shareholder, to account. “I’m genuinely at a loss as this is not a conflict situation. His interests are aligned with the company,” says Hellawell.
That’s just obtuse. Ashley, it is true, has a large and direct interest in Sports Direct’s prosperity, so he’s definitely aligned. But this does not mean that the chairman is obliged to go along with madcap ideas such as Sports Direct taking a punt on Tesco shares via a put-option agreement with Goldman Sachs.
As for Hellawell’s apparent bafflement about why the company gets so much attention over its use of zero-hours contracts, come on, it’s simple: the contracts may be legal but the employment market would be a very different place if everybody used them as enthusiastically as Sports Direct.
Every Lidl bit helps
Lidl’s decision to give all its workers a pay rise, taking hourly rates beyond the government’s definition of a living wage, should take some of the wind of grumbling retailers’ sails about enforced pay hikes. Lidl is a successful company, of course, and is expanding at rapid pace. But it is still far from being the biggest player in town. If it can pay at least £9.35 an hour in London and £8.20 elsewhere, the bulk of the high street should be able to go higher.
