As I write, SABMiller’s (LSE: SAB) shares trade around 3947p, just over 10% below AB InBev’s possible offer of 4400p.
Whether to stay or go now is a hypothetical question for me, because I don’t own SABMiller shares despite admiring the firm for a long time. However, I’m sure that if I did hold I’d be writhing in metaphorical agony about whether to sell up or remain invested now.
The smell of a deal was in the air
Today, SABMiller’s shares are up about 35% since the middle of September when AB InBev first declared its hand. That’s not a bad gain for a month’s holding, is it? Maybe not, but SABMiller’s shares were already trading near their current level back in the spring, before they plunged down in August to around 2934p, enabling AB InBev to make its move.
If SABMiller could trade at today’s level without a takeover offer on the table, why shouldn’t it be able to do so again, even if the AB InBev deal doesn’t happen? That’s a good question and there’s no denying that SABMiller’s brand-driven consumer products business model, with its reliable cash-generating qualities, is attractive and capable of serving the firm and its investors well in the future.
However, there’s a good chance that the ‘scent’ of a potential deal was in the air back in the spring serving to raise SABMiller’s valuation in anticipation. Now that the reality has arrived, SABMiller’s premium rating, that takes in AB InBev’s possible offer, is no less sweet, I’d argue.
Can we count on this deal going through?
ABV InBev hasn’t actually made its formal offer for SABMiller yet but must do so by the extended deadline of 28 October. To me, that makes today’s SABMiller share price even more attractive as it edges towards the proposed 4400p takeover level.
Right now, we have SABMiller trading near to the level at which the offer will execute, but there are several hurdles that could scupper the deal before it happens. The biggest unknown is what the regulators might do. After all, AB InBev proposes to strike a deal that will see the firm providing around a third of the world’s beer.
However, AB InBev sounds confident on the regulatory issue, saying if it puts a formal offer down the firm will make its “best efforts” to obtain any regulatory clearances required to proceed to closing the transaction. To back that up, AB InBev proposes a reverse break fee of $3 billion payable to SABMiller in the event that the transaction fails to close because of the failure to obtain regulatory clearances or the approval of AB InBev shareholders — powerful and compelling stuff.
I’d take the money and run
In cases like this, I’m likely to invoke one of my own trading rules — the faster the rise, the faster the sale. So, I’d be looking to lock in this sudden windfall by selling my SABMiller shares around current levels. In one stroke, I’ve then removed any risk of a share price reversal due to the deal not proceeding, at the cost of a little potential upside.
That said, I can understand investors holding on. Quality firms are relatively rare on the stock market and SABMiller could serve well in the years to come. There could even be a higher offer or, if this deal falls through, other offers down the line.
Those qualities in a company and its business that attract us also tend to attract the attention of other companies. So, when we find a good business, it’s not unusual for takeover approaches to materialise, and they can be a convenient way of getting the value from our holdings.
