SABMiller deal is cause for celebration

21 October 2015 - 02:14 By David Shapiro


Hats off to AB InBev for securing the support of the SABMiller board, opening the way for a $104-billion takeover of its rival brewer in one of the biggest corporate deals ever. Carlos Brito, AB InBev's dazzling leader, intends taking full advantage of the historically low interest rate environment to raise funding for the transaction. It is wishful thinking that he will offer expensive equity to SABMiller shareholders, other than to 41% owners, Altria and Bevco, without whose agreement the bid would have failed and who, for tax reasons, will receive a combination of cash and shares in an unlisted vehicle.Not that SABMiller's management had any choice in the matter. Rejecting AB InBev's advances would have made their share price recoil dramatically from its present level. With all their brave talk about growth, which in US dollars has been ordinary, it would have taken years for the SABMiller share price to reach the £44 offered by the group's pursuers.Instead of making a clamour about the possibility of job losses (there won't be any) and competition issues, the government, too, should be celebrating the considerable windfall it stands to make from capital gains taxes and the inflow of foreign currency that will result from the corporate action.It wasn't the only big commercial transaction to attract attention on the JSE last week. Remgro-controlled hospital group Mediclinic announced it was tying up with United Arab Emirates' al-Noor Group, a move that will increase its international revenue to 70%, and result in the company transferring its primary listing from Johannesburg to London. It is another step that will permit the Rupert family to externalise their wealth. They already have extensive interests in two other large foreign-listed entities - British American Tobacco and Richemont - that originated from their interest in Remgro.Although listed back in 1986, until recently Mediclinic was primarily a domestic healthcare operation. However, a sequence of acquisitions in Switzerland and the Middle East, underwritten by its parent, Remgro, have vastly expanded the group's financial reach, at the same time enhancing its net worth.Today Mediclinic's market capitalisation on the JSE exceeds the combined value of the country's top four platinum producers - Angloplats, Impala, Northam and Lonmin - underscoring a stewing dilemma facing domestic investment managers; namely, the mounting appeal of businesses with high offshore earnings compared with the diminishing merit of home-based industries.The receipt of cash for the SABMiller sale will only complicate matters. At R1.3-trillion the brewer makes up more than 10% of the JSE's total worth.The shortage of good scrip is already evident on the JSE, where many companies trade at multiples that are well beyond potential earnings. To fill the void a number of businesses are seeking listings, causing a feeding frenzy among the investment public, reminiscent of the 1969 and 1987 booms. Last week, Sygnia, a small multi-manager firm started in 2003, debuted on the JSE. The company offered a trivial R262-million worth of shares in a private placement to selected wholesale clients, attracting more than R5-billion in subscriptions. Within two days of trading the share price had doubled, trading at 40 times the value of last year's profit.I'm not sure when we'll receive the SABMiller money - it could be a year away - but when it comes, brace yourself for some thrilling rides.

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