AB InBevsoffer to buySABMiller (LSE: SAB) has ended around a decade of will-they-wont-they speculation.
AB InBev now looks set to hike the amount its prepared to pay for SAB ahead of the deadline on Wednesday, after the latter rejected a42.15 per share offer last week. Under Takeover Panel rules,AB InBev must make a formal offer to acquire SAB by5 pmon Wednesday or walk away for six months.
Colombias Santo Domingo brewing dynasty, which owns14% of SAB and has two board seats, voted to reject the first offer put forward by AB InBev. The suitor needs to appease this majority shareholder before a deal goes ahead.
However, it is now believed that AB InBev could raise its offer for SAB to 44.00 per share, a full 750p or 20% above SABs current price. If a higher offer is rejected once again, AB InBev could decide to make an offer forDiageo (LSE: DGE) instead.
No stranger tobidtalk
Diageois no stranger tobidtalk. Over the summer it was reported threatBrazils richest man, Jorge Paulo Lemann, wasweighing up a bid for the company via hisprivate equity firm 3G Capital. 3Gsflagship investment is ABInBev, so if the AB InBevs deal with SAB falls apart, its likely 3G could swoop on Diageo.
It seems that no acquisition is too big for 3G. During the past year alone the company has been rumoured to be looking at acquiring bothCoca-ColaandPepsi. But the private equity group is perhaps best-known for partnering up with billionaire Warren Buffett, for the acquisition and merger ofKraft Heinz.
Still, having said all of the above,AB InBev is unlikely to swoop on Diageo. The group has stated in the past that it intends to remain abeer company for the foreseeable future. And its easy to see why. Thespiritsmarket is much more complex than the beer market, withmarketing costs accounting for a larger portion of sales. Marketing costs for distillers tend to be in the high-teen percentages as a proportion of sales,versushigh single digits for brewers.Diageosoperating margin currently stands at 29%, 4% below AB InBevs operating margin of 33%.
But even if AB InBev did try and pounce on Diageo, there would be competition concerns just like with SAB. City analysts have stated that thepossibility of regulators allowing such a deal isslim.
Quality for a price
Away from the world of mega-mergers, theres a chance thatFevertree Drinks(LSE: FEVR) could become a bid target.
I should saythat,as yet, theres nothing to suggest that Fevertree is in play, but the company has all the qualities of an attractive bid target. Growth is taking off, the company is debt free, and operating cash flow doubled during the first-half of the year. City analysts expect Fevertree to report earnings per share of 9.3p for full-year 2015 and 10.8p for full-year 2016.
Unfortunately, Fevertrees growth doesnt come cheap. The company trades at aforward P/E ratio of 46, falling to 40next year.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
