Activist TCI takes SABMiller stake, investors scent sweetened offer

A barman pours a beer produced by brewing company SAB Miller at a bar in Cape Town, September 16, 2015. REUTERS/MIKE HUTCHINGS

The Children’s Investment Fund Management (TCI) has taken a stake in SABMiller, the second activist to buy into the brewer in recent weeks, raising the prospect of a late push for improved takeover terms from AB InBev.

The move by TCI comes ahead of SABMiller‘s annual meeting in London on Thursday when investors could question terms of a $100 billion-plus deal that now appear to favour its two largest shareholders after a steep drop in the value of sterling.

British-based TCI, best known for its investments in troubled carmaker Volkswagen and French aerospace group Safran, has acquired just under 1 per cent of SABMiller‘s stock, a source familiar with the matter said.

TCI’s acquisition of a small stake follows news that fellow hedge fund Elliott Advisors had taken a 1.3 per cent stake in the London-listed maker of beers like Peroni and Grolsch, which it later raised to about 1.5 per cent, regulatory filings showed.

The appearance of two of the world’s most powerful activists on the SABMiller shareholder register has prompted talk among some institutional investors that Elliott and TCI could lead a push for AB InBev to improve its 44 pounds-per-share cash offer, aimed at the majority of shareholders.

SAB shares traded at $58.20 (44.31 pounds) at 1130 GMT on Monday.

The source declined to describe the motives or rationale behind TCI’s stakebuilding, but did say the hedge fund “obviously has an interest in the deal and how it pans out”.

TCI and SABMiller declined to comment.

The main offer is now lower than a special cash-and-stock offer designed for SAB’s biggest two investors, cigarette maker Altria and Colombia’s Santo Domingo family, who together own about 40 per cent of the company.

When the deal was announced in November, that partial share alternative — which avoids triggering large tax bills — was worth about $51.59 (39 pounds). But the recent fall in the pound and rise in ABI’s shares have increased its value to about $67.46 (51 pounds).

ROCK THE BOAT?

“Given all the regulatory hoops that the deal has already had to jump through it might be dangerous to rock the boat too much, but Elliott must have taken a view that they can get the offer upped without altering the timetable of the deal materially,” one of SAB’s top 15 investors told Reuters.

Investor advisor Institutional Shareholder Services Inc. has written to clients to point out the relative improvement in the value of the partial share alternative, noting that it now represents a 16 per cent premium to the broader offer, instead of a 4.9 per cent discount.

It also pointed out that while the alternative offer was technically open to all investors, it seemed “designed to be unappealing” to most fund managers since the shares are unlisted and cannot be traded for five years.

The deal is currently structured as a “scheme of arrangement” which requires approval by 75 per cent of SAB’s shareholders. The vote is expected to take place only once outstanding antitrust approvals have been granted.

Another source close to the deal suggested the activists might struggle to garner enough support among SAB shareholders to call for a rewrite of the terms at this late stage, especially since the deal has already received two of the four required approvals from European and South African regulators.

“It’s a dangerous game and there’s no certainty that ABI is willing to raise its offer,” the source said.

“The pound is going back up and this plays in favour of the existing arrangement…Shareholders want to get this deal done.”

Also Read:

China Resources Beer to raise $1.2b in HK share sale to fund SABMiller deal

Philippines’ San Miguel in race to acquire SABmiller’s Grolsch and Peroni

Reuters

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.