Elliott attacks £71bn SABMiller takeover by AB InBev

US activist hedge fund Elliott Management has written to the board of SABMiller, the world’s second-biggest brewer, to raise concerns about the structure of its proposed £71bn takeover by larger US rival Anheuser-Busch InBev.

Elliott will add to growing unrest among investors about the choice between being paid either in cash or mostly stock after a plunge in the value of sterling following the result of a UK referendum caused a widening gap in the respective values of the options.

Elliott, which has built a 1.46 per cent stake in SABMiller through its UK arm, wrote to the board of the South African brewer about its concerns on the payment structure in the past few days, according to people with knowledge of the letter.

Hedge fund managers TCI, run by the British investor Sir Chris Hohn, and Davidson Kempner have also taken stakes in the brewer, and are understood to be pushing for a higher cash offer. Elliott and SABMiller declined to comment.

Investors have been arguing that the mostly stock alternative, which will consist of shares in AB InBev’s that will not trade publicly five years, is not tenable and was designed to appeal to SABMiller’s major shareholders Altria, the US tobacco company, and BevCo, the investment vehicle of the Santo Domingo brewing family.

Meanwhile, the cash option is now 13 per cent lower in value for shareholders after the fall in sterling extended the difference between AB InBev’s £44 a share cash offer for 59 per cent of the company, and the mostly-stock alternative for the remainder. Shares in SABMiller closed slightly higher on Thursday at £44.30.

AB InBev’s stock is listed on Euronext and trades in euros. The euro has gained 8.2 per cent against sterling since Britain voted on June 23 to leave the EU.

Altria and BevCo own about 40 per cent of SABMiller, and the share alternative was designed to encourage them to support a deal as it would minimise their tax liability from an AB InBev takeover.

Jan du Plessis, SABMiller chairman, told investors on Thursday that the South African brewer would review the terms of AB InBev’s bid and “take into consideration all relevant facts and circumstances” — but only after the proposed takeover was cleared by Chinese authorities.
Speaking at the company’s annual shareholder meeting in London, Mr du Plessis said that SABMiller was “still waiting for the precondition in relation to China” and would “look at the transaction as a whole” once those approvals were received.

Mr du Plessis rejected one investor’s characterisation of the partial share offer as discriminatory.
“The option is clearly available to all shareholders,” Mr du Plessis said, adding: “I accept that many shareholders may not want to, or may not be able, to accept the partial share alternative.”
“These are the only circumstances the two major shareholders will support a takeover of the company,” he added. “That allowed the public shareholders in practical terms to take up the £44 offer.”

Elliott has frequently bought shares of companies that are in the process of being acquired with the aim of pushing for a higher price from the buyer.

AB InBev’s takeover of SABMiller has already obtained approval in more than 20 jurisdictions, including the EU, which cleared the merger in May but stipulated that AB InBev sell SABMiller’s entire beer business in Europe.

Earlier this week, US antitrust regulators also approved the deal, after AB InBev agreed to divest SABMiller’s entire US business, including its stake in MillerCoors.