The Motley Fool

Should You Sell SABMiller plc After New £68bn Proposal From Anheuser Busch Inbev SA?

Shares in beer giant SABMiller (LSE: SAB) rose by around 3% this morning after the world’s 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 SABMiller’s share price before AB Inbev’s interest became public, but it may not be enough to win over SABMiller’s board.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

At 9.16am, SABMiller issued a statement pouring cold water on AB InBev’s latest offer. SABMiller said that the firm’s board had already agreed to reject a proposal at £42. This suggests to me that today’s £42.15 proposal might not be enough to swing a deal.

SABMiller’s board will now meet to discuss today’s proposal, after which a further response is expected. However, the firm’s share price has slipped back to under £37 following SABMiller’s announcement, suggesting that the market is pricing in another rejection.

What are the issues?

Based on SABMiller’s 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 doesn’t 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 SABMiller’s board believes that at £42.15 per share, AB Inbev’s 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. SABMiller’s board claims that this valuation represents a discount to comparable transactions.

Today’s 15p increase on a £42 may not be enough, especially as SABMiller also has reservations about the partial share offer being included for the firm’s two largest shareholders, Marlboro owner Altria Group, and BevCo Ltd.

Don’t give up

I don’t believe that SABMiller shareholders should lose hope.

Despite the reservations of SABMiller’s board, the firm’s largest shareholder, Altria Group, has already indicated that it would back an offer of £42.15 or higher.

This could put serious pressure on SABMiller’s 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 there’s still plenty of time.

Ultimately, I suspect that a deal is quite likely, so I wouldn’t 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 Inbev’s latest proposal. Buying today could generate a quick profit, if a deal is eventually agreed.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.