30 Sep 2016 Charles Glass Half Full: The end of SABMiller, but what comes next?
The deal of the century is all but done.
On Thursday, SABMiller shareholders voted to accept the passing of both the resolutions at the UK Scheme Court meeting and the SABMiller Meeting held earlier on Wednesday, in connection with the recommended acquisition of the iconic South African brewer by Anheuser-Busch InBev (AB Inbev).
If that sounds complicated, it’s probably because it was. The deal, which has been in the works since AB InBev made a bid in October, 2015, is valued at more than $100-billion (more than R1.3-trillion), and will form a beverage megalith that folds some of the world’s more recognised brands into a 28% share of the global beer market.
Though supporters of the deal have got almost exactly what they wanted, there were some significant bumps along the way – the British Pound’s nosedive following the Brexit vote, and shareholder insurrection primary among them.
Over the course of the last few months, SABMiller fielded objections from a handful of shareholders, who insisted that the company’s £45 per share purchase price was undervalued, and that the deal privileged SAB’s two biggest investors – the Colombian Santo Domingo family and the US tobacco outfit Altria – over smaller players. (The two collectively own 40% of SABMiller plc.)
A British court ruled last week that neither Altria nor Santo Domingo could take part in yesterday’s single vote for SABMiller’s Scheme, although both agreed to be bound by the outcome regardless.
According to the broker Olivetree Financial, to railroad through with a two-vote structure would have “introduced an uncontrollable risk to the transaction and potentially increased the number of naysayers”.
This meant only 60% of the company could vote, with the law stating a quorum of 75% of shareholders would need to be present and voting to approve the deal.
“All of a sudden you had what was perceived to be a relatively straightforward vote turned on its head,” said Olivetree Financial’s Tyler Tebbs from London.
“You’ve excluded half of the company and voters have double the voting power. Compound that with Brexit and suddenly it seems the vote is a lot more complicated than you think,” he said.
“A very small number of shares could’ve threatened the deal. Up until yesterday there were people not sure where the vote was going to go.”
With the London Stock Exchange’s biggest merger in history now balancing precariously on the table, minority shareholders showed up to vote overwhelmingly in favour of the deal and, in an afternoon, a South African icon was absorbed lock, stock and two smoking barrels into the international conglomerate stratosphere.
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So ends an era.
Once, South African Breweries was South Africa, a corollary that extended deep into the country’s colonial and apartheid-era culture.
The company’s official corporate narrative begins with master brewer Charles Glass and his ubiquitous and much loved Castle Lager. In the mid-1880s, Glass founded the Castle Brewery, which in 1895 would become South African Breweries, and two years later the first industrialised company to list on the Johannesburg Stock Exchange.
The company engaged in a century-long cycle of binge and purge, slurping up rival breweries, bottling plants, soft drink companies, and major retailers, while establishing the Southern Sun Hotel Corporation.
By the 1960s, SAB owned over 90% of the South African beer market. After liberation, the brewer entered its globalisation period, purchasing big names like Pilsner Urquell in the Czech Republic, a majority stake of Lech in Poland, a majority of the Italian brewer Birra Peroni and, most notably, the American brewer Miller.
But nothing lasts forever, and as of Friday, SABMiller will be delisted on the JSE in a deal so large that it will probably shift trading patterns on the exchange. (Financial analysts tie the recent steady uptick of the rand to merger fever.)
According to Business Day, “SABMiller’s R1.3-trillion market capitalisation accounts for 8.6% of the JSE’s total and about 5.3% of the R24.3bn in daily trading.” Indeed, come October 11, when the company must comply with the terms of the US antitrust deal, there will be nothing left of SABMiller. No South Africans will remain in executive roles; the entire operations will be overseen by CEO Carlos Brito from Leuven, Belgium.
“Our assumption is that they will stick to their tendency to sort of slash and burn everything,” said Tebbs of a company that has a reputation for scorched earth cutbacks.
“Look at what they did to Budweiser: A big company, a lot of brand heritage. I don’t think they’ll be shy about bringing in AB Inbev’s best practices. It’ll be ‘our way or the highway’.”
The marriage of the two beer giants is a textbook case of massive, post-modern merger/acquisitions…..