Second Activist Fund Stake Points To Higher SABMiller Takeover Tab

The activist, Children's Investment Fund, accumulated a stake in the brewer of Miller Genuine Draft, suggesting that pressure may be building on Anheuser-Busch to hike or restructure its offer.
By Ronald Orol ,

A second major activist fund is accumulating a stake in SAB Miller (SAB) - Get Report , hiking expectations that Anheuser-Busch InBev (BUD) - Get Report may be pressured to either make changes to the structure of its takeover or hike its overall offer.

The Children's Investment Fund, or TCI, an activist fund managed by Chris Hohn has taken a position of less than 1% in SAB Miller. The London-based activist fund, which has a record of agitating for changes at companies, has reportedly met with SABMiller to discuss the structure of the deal.

The insurgent fund manager, who accumulated a stake through derivatives, joins another activist fund manager who has also accumulated a large stake - Elliott Management's Paul Singer. The New York-based fund owns a 1.3% stake in the London-based brewer of Miller Genuine Draft through derivatives investments. Elliott's stake was reported in a securities filing listed on SABMiller's website.

Singer and his son, Gordon Singer, who runs Elliott's U.K. operations, are leaders in a strategy known by proxy solicitors as "bumpitrage." The investment approach seeks to accumulate blocking stakes at targeted companies - or work with other investors to cumulatively own a blocking stake, in an effort to drive a higher offer price and significant profit for the investors. And while their cumulative stake in SABMiller isn't significant, it is possible that both funds are agitating for a change in the deal structure in light of the drop in the pound immediately following the U.K.'s "Brexit" referendum . A person familiar with the situation noted that Elliott and Hohn are not working together.

The deal, announced in November, gives investors two options - to take a £44 in cash for each SAB Miller share or accept a combination of cash and restricted shares, a security that would remain unlisted until the five year anniversary of the completion of the deal. The deal was reportedly structured to give SAB Miller's two largest investors, Altria and the Santo Domingo family, billionaires from Columbia, a combination of cash and restricted shares. People familiar with the situation note that many institutional investors have internal investment mandates that specifically prohibit them from holding unlisted securities for five years and as a result are forced to take the all-cash offer. However, they note that many of those investors have become agitated with the deal as the price of the pound has dropped after the June Brexit vote and they are pushing for a restructuring of deal terms.

In addition, SABMiller on Monday disclosed in a securities filing that Elliott had hiked its short position in AB InBev, an increase from 0.0373% to 0.0988%. The hike indicates an increased bet that the brewer's shares will fall in price. AB InBev, which is based in Leuven, Belgium and owns the popular U.S. brand Budweiser, is run out of New York City by CEO Carlos Brito.

Spokesmen for SABMiller, Elliott and TCI all declined to comment. 

AB InBev shares improved marginally on Monday in afternoon trading at $126.03, up about 0.48%. SABMiller's shares also rose at 4,429.31 pence, up about 0.10%. It has a market capitalization of around £72.6 billion ($96.31 billion), and the stock is up more than 30% from over a year ago.

TCI has a long history of activist investing. In May, Hohn, sent a scathing letter to Volkswagen Group (VLKAY) demanding it overhaul its "overpaid management" pay plans and improve share-price performance. Volkswagen's beleaguered CFO Frank Witter told the activist fund later that month that the German car company will be making changes to its executive compensation plans at the same time as it take steps to hike profits as part of a strategic review.

Elliott also has a history of activism, which includes a strategy of accumulating a stake at companies in the midst of being acquired and agitating for a higher price. Last week, Elliott reportedly acquired a 13.2% blocking-type stake in Poundland, a discount chain that sells toothpaste and stationary, after the company had agreed to a £597 million offer from South African group Steinhoff. Elliott is likely employing its tried and true bumpitrage strategy by seeking to create enough of a headache for the buyer that it would hike its bid to make Elliott tender into the deal.

The insurgent fund manager is in the midst of s similar strategy at XPO Logistics Europe, formerly Norbert Dentressangle. U.S. based XPO Logistics (XPO) - Get Report last year completed the first of two phases of its $3.5 billion acquisition of the company. Elliott acquired a 9% stake in what is now XPO Logistics Euorpe and has agitated for a higher price, arguing that the offer did not represent the combined companies' synergies. 

In addition, Elliott has an ongoing campaign at Kabel Deutschland, which was mostly acquired by Vodafone Group (VOD) - Get Report in 2013. The activist fund became Kabel's largest minority shareholder with a 14% stake and has opposed the U.K. telecom giant's takeover of the company. The fund never tendered its shares and in 2014 it filed a lawsuit in a regional court in Germany asserting that Kabel Deutschland's acceptance of Vodafone's offer didn't fairly value the company's assets.

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