Shares in beer giant SABMiller (LSE: SAB) rose by around 3% this morning after the worlds largest brewer, Budweiser owner Anheuser Busch InBev SA, announced a new 42.15 per share proposal for the firm.
The proposed bid represents a 44% premium on SABMillers share price before AB Inbevs interest became public, but it may not be enough to win over SABMillers board.
At 9.16am, SABMiller issued a statement pouring cold water on AB InBevs latest offer. SABMiller said that the firms board had already agreed to reject a proposal at 42. This suggests to me that todays 42.15 proposal might not be enough to swing a deal.
SABMillers board will now meet to discuss todays proposal, after which a further response is expected. However, the firms share price has slipped back to under 37 following SABMillers announcement, suggesting that the market is pricing in another rejection.
What are the issues?
Based on SABMillers comments this morning, this deal faces two main obstacles.
The first is that SABMiller knows it has a strong hand, thanks to its crown jewel a large share of the fast-growing African and Latin American beer markets.
SABMiller reported sales growth of 9% in Africa and 8% in Latin America during the first half of the year. It doesnt need a deal, as chairman Jan du Plessis made clear in his comments this morning:
SABMiller is the crown jewel of the global brewing industry, uniquely positioned to continue to generate decades of standalone future volume and value growth for all SABMiller shareholders from highly attractive markets.
The other issue is that SABMillers board believes that at 42.15 per share, AB Inbevs offer undervalues SABMiller.
According to SABMiller, a 42 offer only values SABMiller at 14.7 times earnings before interest, tax, depreciation and amortisation (EBITDA), based on earnings for the year ending 31 March 2015. SABMillers board claims that this valuation represents a discount to comparable transactions.
Todays 15p increase on a 42 may not be enough, especially as SABMiller also has reservations about the partial share offer being included for the firms two largest shareholders, Marlboro owner Altria Group, and BevCo Ltd.
Dont give up
I dont believe that SABMiller shareholders should lose hope.
Despite the reservations of SABMillers board, the firms largest shareholder, Altria Group, has already indicated that it would back an offer of 42.15 or higher.
This could put serious pressure on SABMillers board to engage with AB InBev and tweak this latest proposal into an acceptable format. Under UK stock market rules, AB InBev has until 14 October to make a firm offer so theres still plenty of time.
Ultimately, I suspect that a deal is quite likely, so I wouldnt sell SABMiller shares at the moment. A bigger profit could be in the pipeline.
Indeed, the current share price is around 12% below the value of AB Inbevs latest proposal. Buying today could generate a quick profit, if a deal is eventually agreed.
Despite this opportunity, I don’t believe that betting on takeover deals is a reliable way to make big profits from shares.
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Roland Head 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.