SABMiller Big Investors Eye $3.2 Billion Windfall From Pound

  • Value of share alternative has risen to 17% premium over cash
  • ‘For AB InBev to have left that risk open is surprise’: Russo

Plummeting Pound Helps SABMiller Investors

Britain’s decision to leave the EU has complicated a slew of deals. In the latest twist, the plummeting pound is creating an unintended 2.4 billion-pound ($3.2 billion) premium for a select few shareholders in SABMiller Plc.

That’s because the slide in the pound has pushed the value of the cash-and-stock mix that two investors will get in Anheuser-Busch InBev NV’s takeover of the company to about 51.50 pounds per SABMiller share -- 17 percent above the 44-pound all-cash offer that the holders of a majority of shares will receive. When the acquisition was announced, the cash-and-stock alternative was valued at 39 pounds, a discount to the cash price.

AB InBev designed the so-called partial share alternative as a tax-friendly option for the two biggest SABMiller holders -- Altria Group Inc. and BevCo Ltd. -- though the Belgian beermaker failed to include a clause that would limit the impact of currency swings on the 77.8 billion-pound ($102 billion) deal for the U.K. brewer.

The catch is, the investors taking the cash-and-stock option have to hold on to their shares for five years, meaning its value could decline again.

“Whether or not there’s a threat to the deal in terms of fairness is a fascinating question and for AB InBev to have left that risk open is a surprise,” said Tom Russo, who manages $10 billion for Gardner Russo & Gardner. Since the takeover was announced, Russo’s sold most of his firm’s SABMiller holding and built an $800 million position in AB InBev. “I’m pleased we had a chance to redeploy the cash from the deal. As for the specifics of the deal’s structure, it’ll be somebody else’s problem.”

AB InBev shares fell 1.3 percent to 115.70 euros at 4:05 p.m. in Brussels. SABMiller dropped 0.3 percent to 43.47 pounds.

AB InBev’s takeover of London-based SABMiller -- set to be the largest corporate takeover in U.K. history -- is one of many European deals muddied by the economic uncertainty following the Brexit vote. Whether it’s Revolution Bars scrapping the purchase of pubs in Scotland, or German regulators who don’t want a combined European mega-stock exchange to be based in London, the U.K.’s decision to leave the EU has cast doubt far and wide.

For a look at how the pound is hurting SABMiller’s U.S. investors, click here.

Representatives for SABMiller and AB InBev declined to comment. AB InBev, based in Leuven, Belgium, is on track to close the combination in the second half of 2016, the company said last week, after obtaining approval from South Africa’s competition authority.

As part of the offer, AB InBev is willing to issue enough shares to cover the demand from tobacco maker Altria and BevCo, the holding company for Colombia’s Santo Domingo family, who have a combined 40.4 percent stake, though any investor can ask for cash and stock. The shares won’t be listed on any exchange for five years, and can’t be traded or transferred during that period, which may deter most fund managers from choosing the partial share alternative, or PSA.

“It’s tough to judge whether the deal structure’s fair,” Thorsten Winkelmann, a fund manager at Allianz Global Investors, said by phone. “An institutional investor managing mutual funds will always find it tough to go for the PSA and the reaction of the pound was surely not in AB InBev’s consideration when they struck the deal.”

Watch Next: Brexit Will Likely Impact Deal Making, Here's How

Brexit Will Likely Impact Deal Making, Here's How

Before it's here, it's on the Bloomberg Terminal.