Friday 30 September 2016

SABMiller promises over €900m in cuts to fend off €88bn Anheuser-Busch InBev buyout approach

Thomas Buckley and Thomas Mulier

Published 11/10/2015 | 02:30

SABMiller's products include Miller and Grolsch
SABMiller's products include Miller and Grolsch

Brewer SABMiller has doubled a pledge to cut production costs, as it seeks to rally shareholders around its rebuttal of Anheuser-Busch InBev, the larger rival seeking to buy the UK drink maker for a record €88bn.

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The deal would combine the maker of Miller and Peroni with the brewer of Budweiser and Michelob beers.

Annual savings in the 12 months through March 2016 should exceed €382m and reach €935m by 2020, the brewer said on Friday in a statement. The company had previously targeted about €443m in annual savings by 2018.

The onus is on SAB to prove it's worth more after saying AB InBev's proposal "substantially undervalues" the brewer of Grolsch and Peroni.

Under UK rules, AB InBev has until October 14 to make a formal offer for SABMiller. Altria Group, SABMiller's largest shareholder (with a 27pc stake), has urged the board to accept the proposal by AB InBev, which came out on Thursday criticising the target company for its refusal to engage, saying its resistance lacks credibility.

"Clearly it makes a lot of sense as part of SABMiller's bid defence," said Trevor Stirling, an analyst at Sanford Bernstein. "They're saying they can drive out cost savings as well as AB InBev can, to reassure shareholders that there's no need to sell." The savings will come mostly from procurement and also from making manufacturing and distribution more efficient, the company said. SABMiller said the plan assumes that there is no change of ownership.

SAB rose as much as 0.3pc to £36.53 in London. AB InBev's proposal of £42.15 per share - in cash - is 44pc above where SABMiller was trading before speculation of a deal.

"Our recent trading statement highlighted our accelerating growth in the second quarter," said SABMiller CEO Alan Clark.

Clark said SABMiller has a 38pc profit margin in its biggest 20 markets, based on earnings before interest, tax, depreciation and amortization. Still, that's short of AB InBev's profitability, the highest among major brewers.

The Belgian brewer's Ebitda margin for its total business was 39.4pc last year. Including all of SABMiller's markets, the brewer's most recent full-year Ebitda margin was 25.4pc on an adjusted basis, or 29.5pc unadjusted.

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