Miller Genuine Draft maker SABMiller (SBMRY) may soon clink glasses with suitor AB InBev (BUD) - Get Report after all, after the target's board said Friday, July 29, that it will unanimously recommend the cash part of AB InBev's revised offer.
The news came shortly after AB InBev announced the last major antitrust clearance for the tie-up, nicknamed 'Megabrew,' which it's still aiming to close in the second half after raising the tab earlier this week.
As for the non-cash part of the offer, SABMiller will recommend that its two largest shareholders, tobacco giant Altria Group (MO) - Get Report and the Santo Domingo family's Bevco be treated as a separate class and therefore be allowed to vote on the tweaked offer separately.
AB InBev, which makes Bud Light, Budweiser and Becks, this week raised its offer to £79 billion ($104.21 billion) from £73 billion agreed last year. Its latest offer is for 4,500 pence a share in cash, 100 pence above what was agreed last autumn. It also said it that shareholders who choose to be paid in cash and stocks would get 4,655.80 pence in cash for each SABMiller share held rather than the 3,778.80 pence a share offered in November, and 0.483969 restricted shares as before.
The partial share alternative mainly applies to the 41.6% of the target's shares held by Altria and Bevco.
"The board's decision was difficult given changes in circumstances" since last November," said SABMiller's chairman, Jan du Plessis, in Friday's statement. "At that time we were satisfied that the 50% premium to the undisturbed share price appropriately reflected the quality of the business and its long term prospects.
"Since then," he added, "various factors have affected the value of the offer, most importantly the impact of the Brexit vote on the value of [the pound] and the re-rating of comparable companies. This has made the board's decision more challenging, and we believe the final cash consideration ... to be at the lower end of the range of values considered recommendable."
AB InBev earlier in the afternoon said it had received conditional approval from China's Ministry of Commerce known as Mofcom based on its agreement to sell SABMiller's 49% stake in China Resources Snow Breweries to its joint venture partner, China Resources Beer.
That deal, worth $1.6 billion, was agreed in March, one of several asset sales AB InBev embarked on early on in the process to stave off any antitrust turbulence. The strategy paid off, including with watchdogs in Brussels, Washington and South Africa, all of whom have also given the conditional green light.
Mofcom's approval "is a significant milestone for this transaction," meaning that all pre-conditions for the proposed deal have now been satisfied, AB InBev CEO Carlos Brito said on an afternoon conference call. He also reiterated the company' s objective of closing the deal this year.
The higher offer, prompted by pressure from activist investors amid the falling British currency, was thrown into question on Thursday as SABMiller pressed the pause button on deal integration that started months ago pending the board decision.
AB InBev shares rose steadily throughout the day, and were up 4.63% in late afternoon trading at €115.35, while SABMiller shares were 2.57% higher in London at 4,435 pence, still below the revised offer price.
AB InBev's continued confidence in getting the deal done overshadowed lower than expected quarterly results released on Friday.
Normalized Ebitda rose 4.3% to $4.01 billion, undershooting the $4.13 billion projected in a Reuters consensus forecast. The company said top-line growth was partly offset by investments in brands, which was weighted towards the first half of the year.
Total volumes declined by 1.7% in the second quarter, as weaknesses in Brazil and Argentina overshadowed good results in Mexico and the U.S.
AB InBev also lowered its 2016 guidance for Brazil, where it now expects net revenue to be flat compared to last year, compared with a previous forecast of net revenue growth in the mid to high single digits. It blamed a weak consumer environment and the increased mix of returnable glass bottles, which boost Ebitda but reduce net revenue on a per hectoliter basis.
In China, while industry volumes remain under pressure, AB InBev said its own volumes continue to do better than average, which it sees continuing amid its focus on premium and super premium brands.
Among industry peers due to report results in coming weeks, Heineken (HEINY) of the Netherlands should see a strong performance in Mexico and western Europe partly offset by a softer Brazil, while Carlsberg (CABGY) of Denmark is expected to report Russia beer volumes down in the mid-single digits, according to analysts at Credit Suisse.
Heineken is due to report on Aug. 1 and Carlsberg on Aug. 17.
AB InBev and SABMiller are the world's No. 1 and No. 2 brewers, respectively, followed by Heineken, Carlsberg and Snow. A combined ABInBev-SABMiller would sell one out of three beers on the planet and hold about half the global beer profit pool.