SABMiller plc Is Ripe For A Bid By Anheuser Busch Inbev SA

SABMiller plc (LON:SAB) under the spotlight as takeover talks with Anheuser Busch Inbev SA (ADR) (NYSE:BUD) emerge once again.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Is it time to believe market rumours surrounding SAB Miller (LSE: SAB)?

“Punters order up another round of takeover talk,” is the headline from The Times on Thursday. “Yesterday, in a new spin on the tale, dealers were hearing strong suggestions that SAB has been taking steps to bolster its defences in the event of a move by the purveyor of Budweiser and Stella Artois,” the newspaper added.

Consolidation

If consolidation speeds up in the beer industry, how likely is a takeover of SABMiller?

sabmillerThe answer is very simple: SAB is the most obvious takeover target in the sector, while AB InBev is the most obvious acquirer. SAB would cost more than $115bn, including net debt, yet AB Inbev could certainly pull the trigger. The world’s largest brewer would just have to repeat what it did in the past when InBev merged with Anheuser-Bush: it would load the combined entity’s balance sheet with debt, and would de-lever by selling assets and pursuing efficiencies.

It’s hard to suggest other combinations for AB InBev. Heinken still presents a complex shareholding structure, which prevents a change of ownership, in my view. Furthermore, the Dutch brewer’s assets aren’t particularly appealing, and there is no reason why a suitor would spend £40bn or so to secure a company that offers poor growth prospects and lower profitability than SAB.

In the light of Heineken’s geographical reach, synergies will also be more difficult to achieve. Heineken operates in mature markets where trends for volumes and prices aren’t encouraging, to put it mildly.

Elsewhere, Carlsberg is the smallest brewer in the top four. It may be acquired at some point, but its brands portfolio is much less enticing than that of its larger rivals. Foster’s, which was bought by SAB at the end of 2011, was the last public asset available on the market. What’s next depends on AB InBev, whose management may soon need to act to deliver value to shareholders.

SAB Standalone                                                                   

And if SAB remains independent, what does the future hold for its shareholders?

SAB stock still offers long-term value at this price, although it trades at a significant premium compared the shares of most rivals. Revenue are unlikely to surprise on the upside for some time, but even if growth sputters, operating profitability will be in region of 30%. SAB is cutting costs to become a leaner entity, so growth in earnings per share (EPS) won’t be a problem. According to market estimates, EPS will grow by 18%, 10.4% and 7.2% in 2015, 2016 and 2017, respectively.

The brewer is also expected to grow dividend payments by 12%, 10% and 9.2% in the next three years. I think these estimates are reasonable, although some pressure may build up towards the end of 2015. Then, SAB will likely implement another round of cost cuts to please investors if it doesn’t find valid alternatives (reads: acquisitions).

Incidentally, its balance sheet is sound.

Market Reaction

Investors don’t seem willing to buy into the rumours surrounding SAB. The only alternative to a takeover by AB InBev would be a merger with Diageo, but I struggle to find merits in such a tie-up. The stock was down 0.8% in early trade on Thursday. SAB’s valuation has been boosted by takeover talk for years, so it’s easy to dismiss such speculations right now. But if consolidation accelerates, and if the beer sector follows the same long-term pattern of the tobacco industry, SAB will certainly receive an offer sooner rather than later.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »