Investor Update

Oct 7, 2015

Slides

Good day, ladies and gentlemen, and welcome to the Anheuser Busch InBev Investor Conference Call. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer and Mr. Felipe Dutra, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www. Abinbev.com or the proposed transactions microsite at www. Globalbrewer.com and click on the Investors tab. Please note the disclaimer in relation to forward looking statements on Slide 2 of this presentation. Today's webcast will be available for online demand playback later today. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to Brito. Sir, you may begin. Well, thank you, Tracy, and good morning, everyone, and thank you for joining us on this call today. I'm here with our CFO, Felipe Dutra. Today, we announced the proposal to combine with SABMiller to build the 1st truly global beer company. We believe this transaction would be in the best interest of both companies consumers, shareholders, employees, wholesalers, business partners and the communities which they serve. I'd like to start by providing you with a summary of the events of the past few weeks leading up to today's announcement. On September 17, A. B. Embedded made a private proposal to the Board of Directors of SAB Miller of £38 per share in cash with a partial short alternative. On September 22, we made a revised private proposal to the board of £40 per share in cash with a partial share alternative. Both proposals were rejected by the board without meaningful engagement. Today, we have announced an increased proposal of 42 pounds 0.15 per share in cash with a partial share alternative. This proposal represents a premium of approximately 44% compared to SAB Miller's closing share price on September 14th, the date prior to renewed speculation of an approach by AB InBev and that price was £29.34 We believe this cash proposal is highly attractive to SABMiller's shareholders and a compelling opportunity to realize substantial value for their investment. Despite our efforts to engage with SABMiller's Board, we have been unable to establish meaningful engagement. AB InBev believes that the revised proposal of £42.15 per share in cash is at a level that the Board of SABMiller should recommend. As we have said on many previous occasions, AB InBev has substantial organic growth opportunities within our existing business and we've always maintained a disciplined approach to M and A. The agenda for the call today is a brief one, allowing plenty of time for Q and A. Today's proposal consists of a £42.15 per share cash offer with a partial share alternative. This represents a substantial increase to our initial proposal of £38 The cash proposal also represents a premium of approximately 44 percent to SABMiller's closing share price of £29.34 on September 14, which was the last day prior to a new speculation of an approach for AB from AB InBev. In addition, the partial show alternative represents an approximate 28% premium over the same closing price. The cash consideration under the transaction would be financed through a combination of AB InBev's internal financial resources and new third party debt. AB InBev is ready and willing to work closely with SABMiller and the relevant authorities in seeking to bring all potential regulatory reviews to timely and appropriate resolution. In the U. S. And China, in particular, our goal would be to resolve any regulatory or contractual considerations promptly and proactively. Similarly, in South Africa and other jurisdictions, our intention would be to work together with SABMiller to address any regulatory requirements. We believe this combination has strong strategic merits. 1st and foremost, it creates the 1st truly global beer company and one of the world's leading consumer products companies in the world. It brings together a larger complementary geographic footprint with access to key emerging regions with strong growth prospects, including Africa, Asia, and Central and South America. The African continent would be a critical driver of growth for the combined company, building on the strong heritage of SABMiller in the region. The combined company's joint portfolio of complementary global and local brands would also provide more choices for beer drinkers in the new and existing markets around the world. Finally, we would benefit from the skills, enthusiasm, commitment, energy and drive of the combined global talent pool. As you can see on slide 8, the combination of AB InBev and SABMiller would create a truly global brewer that would take its place as one of the world's leading consumer products companies. As a combined company, the group will generate revenues of $64,000,000,000 The map on slide 9 material presence in Africa, whereas SABMiller and its associates have a strong operating history and presence. SABMiller also has good positions in Colombia, Ecuador, Peru and Australia. Conversely, AB InBev has a strong presence in markets such as Canada, Mexico, Brazil, Argentina and parts of Western Europe such as the UK, France, Germany and Belgium. We believe Africa in particular will be a critical driver of future growth for the combined company. SABMiller has a deep history in the region dating back to the 19th century and we intend to maintain a strong focus there going forward. The African continent has a number of very attractive markets with increasing GDPs, a growing middle class and expanding economic opportunities. Given this potential and SABMiller's success in the region, we expect Africa to continue to play a vital role in the combined company. AB InBev intends to establish a secondary listing on the Johannesburg Stock Exchange. We also intend to have a local board and for Johannesburg to continue to be the regional headquarters for the combined group on the African continent. We also recognize SABMiller's long term support for the progress of South African society and the company's deep engagement with local stakeholders. In particular, we admire the Black empowerment scheme that SABMiller has put in place and we intend to continue this initiative. In short, we have seen the many achievements of SABMiller on the continent and believe there's a lot that our 2 companies can achieve together in the region. You have often heard me say that our only long term sustainable competitive advantage is our people. We believe the combined company would benefit from the great talent within both organizations coming together and sharing their expertise and experience. At AB InBev, we are a truly international organization with nearly 30 nationalities represented in our most senior management positions. SABMiller's experienced management team offers extensive market expertise, especially in regions where AB InBev does not currently have a significant presence. As a result, we expect the key members of SABMiller's management team and its employees would play a significant role in the combined company. Finally, we believe very strongly that global companies such as ours have a responsibility to contribute to the world around us. AB InBev has been leading in this area through our Building a Better World program. SABMiller has similarly focused on making a difference with a strong mission to improve livelihoods and help build local communities. Both companies strive to have a positive impact by providing opportunities all along the supply chain from farmers to brewmasters to truck drivers to customers, as well as aspiring to the highest standards of corporate social responsibility. In addition, both companies have strong programs that partner with stakeholders to encourage the responsible enjoyment of our products and reduce the impact on the environment with a focus on water, energy and recycling. We believe combining our 2 companies with pool resources and expertise allowing us to make a greater and more positive impact on the world. Let's now turn to the financial terms of our proposal. Today, we have submitted a highly attractive proposal to acquire SABMiller for £42.15 per share in cash with a partial share alternative. The cash proposal represents an approximately 44% premium to SAB Miller's closing share price on September 14, which we believe represents a compelling opportunity for shareholders to realize substantial value for their investment. The partial share alternative is designed to enable compelling cash offer to be made to SABMiller's public shareholders and to provide a continuing investment for Altria and Bevco, who together hold approximately 41% of the SABMiller shares, which AB InBev believes will satisfy their financial requirements. Importantly, the Portia share alternative enables appropriate financing to be achieved and supports the cash offer at a higher price than AB InBev would otherwise be able to offer. The partial share alternative involves the creation of a separate class of AB InBev restricted shares that are unlisted, subject to a 5 year lockup and convertible into AB InBev ordinary shares on a one to one basis after that 5 year period. They also rank equally with AB InBev ordinary shares with regards to dividends and voting rights. In addition, the partial share alternative comprises up to 326,000,000 shares and it's available for approximately 41% of the SABMiller shares. Pre conversion into AB InBev ordinary shares, SABMiller shareholders who elect the partial share alternative will hold 0.483969 restricted shares for every one SABMiller share. We'll also receive £2.37 in cash for each SABMiller share. The partial share alternative values each SAB Miller share at £37.49 which represents an approximately 28% premium to SABMiller's closing price of 29.34p on September 14. This means that the value of the partial share alternative is less than the proposed cash offer even before taking into account the additional discount that would apply for the unlisted nature and non transferability of the restricted shares. AB InBev is not seeking a recommendation from the Board of SABMiller in respect of the partial short alternative. As I mentioned earlier, the cash consideration under the transaction would be financed through a combination of AB InBev's internal financial resources and new third party debt. With that, let me close by summarizing once again where we stand. In the last 3 weeks, we have submitted 2 proposals in private to the Board of SABMiller. Both proposals were rejected by the Board without meaningful engagement. We believe the revised proposal is highly attractive to SABMiller shareholders and a compelling opportunity to realize substantial value for their investment. However, despite our efforts to engage with SABMiller's Board, we have been unable to establish meaningful engagement. AB InBev believes that today's revised proposal of £42.15 per share in cash is at a level that the Board of SABMiller should recommend. With that, I'd like to ask Tracy to open the lines for questions. Thank Your first question comes from the line of Chris Pitcher of Redburn. Please ask your question. Peter, good morning. Ed, a couple of questions. Could you give us just a bit of insight into how much due diligence you've been able to do thus far on the Tradan's action. I appreciate it's probably too early to be talking, synergy figures. Could you also confirm the positions on Altria, which I believe you said that they would support it and the Santo Domingo or the Bevco family? And then finally, forgive me if I've missed it or not, but the restricted shares, would they have votes? I assume they would be treated as equity in your business, but do they are they non voting? Thank you very much. Well, Chris, hi, good morning. I'll try to see if I remember all the questions. So in terms of votes, yes, they'll have from day 1 despite being restricted and having a lockup period of 5 years. The other question about due diligence, we've done our homework with the public information that's available to 'twenty one, but we haven't started any other kind of due diligence because again we haven't engaged with them yet. The other questions Wair? Just in terms of the position of Altra and Bevco, I mean, if Altra was to accept shares, would that give them entitlement to a Board seat? I'm looking at the voting control of AB InBev post the proposed transaction. Well, in terms of Altria, they released a press release today that's out there that has crossed the wire, say that they propose an offer that with them today. So that's very interesting. In terms of Bevco, we've had extensive discussions with them. Discussions were held with them in the past few months. This partial share alternative was designed with and for them and we hope to have their support. And it's of course as you see in our press release, there's no transaction with both of these big shareholders supporting and taking the paper. Your next question comes from the line of Edward Mundy of Nomura. Morning, everyone. Three questions, please. In the press release, you mentioned a very strong commitment to Africa. Can you provide some color on discussions you may have had with Castel in Africa? Secondly, on soft drinks, so ABI is a Pepsi bottler through your subsidiary Ambev and SAB is a Coke bottler. Could you provide some color on discussions you may have had with Coke, again, in particular in Africa? And then finally, on the sticking at ABI, would you consider widening the sticking and welcoming in those shareholders such as Ultra who may select the share alternative into the controlled shareholder structure that you currently enjoy at ABI? Well, a couple of things. First on Africa, of course Africa is key and will play a vital role in the future of the combined company. That's a continent with bidding consumers and SAB has a very strong history and success in this region dating back to the 19th century. So that's the key. As we said in our press release, we intend to establish a secondary listing on the Johannesburg Stock Exchange as well as have a local board that would be critical to our success in that region of the combined company. We intend for Johannesburg to continue to be the regional headquarters for the combined group on the African continent and in addition we admire the broad based Black Economic Empowerment scheme that SABMiller has put in place and intend to continue this initiative. So Africa of course is a key piece in this whole transaction and SAB has a history, a very successful history and very powerful brands and great expertise in that market. So that will be of course key in the whole process. In terms of the bottling agreements with both Coke and Pepsi, I think it's too early to speculate on anything. We still have many steps to get there. But as you said, that's a fact. And in terms of the stitching, it's up for them to decide what to do next. Fine. And Britta, just on the first question, I appreciate your color there on the importance of Africa, but I'm wondering whether you're able to provide some color as to whether you have the support of the Castel Group for this approach in Africa? Well, given UK rules and the panel, we have some restrictions on all we can say at this point. So I'll leave it at there. Okay. Thank you. Thank you. Thank you. Your next question comes from the line of Robert Woss of ABN AMRO. Please ask your question. Yes. Hi, good morning. Robert Jean Francois, ABN AMRO. Two questions. Is it already possible to give your first view on potential saving opportunities you see should the 2 companies combine? Second question already alluded to a little bit, but in general, can you explain what the rights are that the sub Miller partners such as Molson Coors, Castel and China Resources Enterprise have if there is a change in control? Thank you. Well, in terms of synergies, it's far too soon to speculate at this time. But what I can say is that a combination of AB InBev and SABMiller would generate of course significant growth opportunities for marketing the company's combined brand portfolio through a largely complementary distribution network and of course also applying the best practice of both companies across the new organization. So that's very exciting. This combination is about growth mainly. In terms of other questions you asked about other joint venture partners, again, given some given the U. K. Rules, we're restricted in what we can say at this time. All right. Thank you. Thank you. Your next question comes from the line of Olivier Nicolai of Morgan Stanley. Please ask your question. Hi, good morning, Bertor. Just based on the information available to you, in which region do you see the highest level of synergies, if can comment on that? And overall, what is the what's your view on the importance of having soft drinks and beer in Africa? Thank you. Again, on synergies, as I said before, I mean, it's far too soon to speculate on any details. But again, it's going to be very interesting to have these 2 companies combined. This would create a wealth of growth opportunities and a wealth of best practices and skill sets that will be put together to bear. So that's the exciting thing about one of the exciting things about this combination for sure. And in terms of soft drinks, what we know today is what's public available. Of course, as we engage, we'll learn more about these businesses in Africa that we, of course, are looking forward to it. Thank you. Thank you. Your next question comes from Andrew Holland of SocGen. Yes. Hi. Couple of questions. You've said that you are restricted as to what you can say about SAB's joint ventures. Can you say whether you've actually had any direct discussions with either Molson Coors or China Resources is question 1. And the second question is, can you tell us anything about what you might do with your dividend policy as a result of this deal? Again, Andrew, again, in terms of joint ventures, as I said before, given the U. K. Rules, I mean, we're restricted in what we can say at this time. And in terms of dividends, I mean, it's far too soon to speculate. So sorry, not very helpful here. Your next question comes from the line of Simon Hales of Barclays. Please ask your question. Thanks. Good morning, Brito. A couple of questions, please, if I can. Just firstly, I mean, can you give us any indication at all with regard to the regulatory process, what sort of time frame you may be sort of broadly thinking this may take to actually get it to full fruition and completion if you do get a recommendation from SABMiller's Board? And secondly, just with regards to your primary listing in Belgium, should we just assume that listing will remain there? Or is there any opportunity you may also look to have another listing in London as well? Well, Simon, in terms of regulatory, I mean, I can assure you that we've done a lot of homework to get to this point. We've been thinking about this for a long time. But let me tell you a couple of things. First, our geographic footprint, as you saw in the presentation, they are largely complementary on a continental and regional basis. And so that's something that's very nice about this combination. But of course, we will be working with the relevant authorities in seeking to bring all potential regulatory reviews to timely and appropriate resolution. It's also important to understand that the combined company would be operating virtually every major market be around the world, including key emerging regions. So and in the U. S. And China, in particular, we would seek to resolve regulatory or any regulatory contractual considerations promptly in a very proactive fashion. Similarly in South Africa and some other jurisdictions, we would work with SAB Malue to address any regulatory requirements. And that will take as usual a couple of months. In the last transaction with AB, it took 4 months to solve the regulatory issues. And just on the listing in terms of potential of keeping a listing in London? Yes. Again, at this point, we're restricted in what we can say, sorry. Okay. Thank you, Richard. You're welcome, Sam. Thank you. Your next question comes from the line of Eamonn Ferry of Exane. Please ask your question. Hi, Brito. In the event that you guys don't get Board approval, what's the next plan? Would you seek to perhaps go hostile? I know you've said publicly thus far, it's not your preferred option, but in the event you wouldn't get approval, would you perhaps think that as an option? And then Felipe, perhaps one for you. I guess you had quite detailed discussions with some of your bankers. What do you think in terms of cost of funding is the likely number if for example you were to go to 4 or 5 times leverage? What do you think the cost of funding is likely to be? Thanks. Well, Amman, in terms of your first question, I mean, we believe that the revised cash proposal of £42.15 per share is at a level that the Board of SAB should recommend. That's our strong belief. Altria, given their press release, also has a similar belief. We believe that this revised proposal should be highly attractive to SABMiller shareholders and provides an extremely compelling opportunity for them. And that's one of the reasons why we decided to share that with the SABMiller shareholders. Felipe? Yes. On the funding piece, as you can imagine, we have had several conversations with our core relationship banks. And we are pleased to have their support. Finance is not going to be a problem. You may also have seen statements made by Moody's and Standard and Poor's in terms of their view on the potential ratings impact if this transaction goes through. And also the way the secondary market for our outstanding bonds, it's currently trading. I believe you should use that as a proxy for the cost of funding for this. As we have always done, the idea is really to take the bridge loans from the banks for a very short period of time and then quickly move into the bond market. Okay. Thank you. You're welcome. Thank you. Your next question comes from the line of Eddie Hargreaves of Canaccord. Please ask your question. Yes. Good morning. I think you've sort of touched on this and appreciate that you've got numerous restrictions on what you can say. But could you say whether you've already had some engagement with the antitrust authorities in the U. S. And in particular China? Yes. Again, at this point, I mean, sorry, but on this thing of joint finishers and regulatory, there's not much you can say at this point. I hope you appreciate that. Yes, sure. Thanks, Eddie. Thank you. Your next question comes from the line of Caroline Drougis of Alliance. Please ask your question. Yes. Thanks for taking the question. Just on the leverage and working policy, where do you intend and at which time horizon to bring back the net debt EBITDA to around 2x in line with your stated commitment? Yes. Caroline, I mean, again, sorry, but at this point, we can't really talk too much about this kind of detail on the financing and future prospects. Your next question comes from the line of Sanjit Ujjla of Credit Suisse. Please ask your question. Hey, guys. Are you able to give us a bit of color on what sort of cost of capital you'd put on SAB? And assuming an offer is accepted to what you proposed this morning. For what time period do you think you can meet that cost of capital? Thanks. Well, we expect that there will be no material change in our weighted average cost of capital as it currently stands. The new company, if this transaction goes through, will have a more kind of risk the risk diversification profile and therefore no material impact on our weighted average cost of capital is expected. And sorry, over what time period do you think you'd be able to meet that? Well, under the UK Taco Pena rules, it would not be appropriate for me to elaborate the forecast and pro formas at this point. Okay, thanks. Thank you. Thanks, Sanjeet. Thank you. The next question comes from the line of James Edward Jones of RBC. Please ask your question. Yes. Good morning, Bruce. In the SOB statement they've just put out, which is slightly unfair to hit you with that given it's the middle of your call, They're saying you actually made an offer of £42 verbally to them on the 5th October. I was wondering why that wasn't mentioned in your statement. Well, that was the private conversations we had. That was never an offer. That was more testing grounds. And they were not very excited to engage with that price. And we decided to go public. Okay. Thank you. You're welcome, James. Thank you. Your next question comes from the line of Andrew Stott of BoA Merrill Lynch. Please ask your question. Yes, good morning, Brito. I guess there's a lot of questions you can't answer today for obvious reasons. Maybe I can ask you a theoretical question. I'll give it a go. Going back to China and what we learned in early September, I mean theoretically on a longer term horizon, would you consider owning a broader spectrum of brands in China? In other words, to own a more value affordable brand, very theoretical question. Yes. It is a very theoretical question, and I cannot give you a very real answer really because, I mean, as I said before in the U. S. And China in particular, we would seek to resolve any regulatory contractual considerations promptly. So that's in our radar screen and that's top of our list. But of course, first we need to engage with the Board. Okay, fair enough. And that's what we're trying to do today with the offering. Thank you. Thank you, Andrew. Your next question comes from the line of Ray William of SBG Securities. Please ask your question. Just a clarification question regarding the proposed 226,000,000 shares that you plan to offer to FAB shareholders. I just want to know if for instance all the FAB shareholders except the partial offer, is that the maximum shares that will be allocated and hence the rest will come out of the cash offer. And my other question is just in terms of the listing on the JSE. Just want to know, I mean, I would guess there won't be a lot of shares available in the initial stages given that the shares will be restricted. I just want to know if my conclusions are correct. In terms of the up to 326,000,000 shares of ABI, That's the maximum we're willing to do. So you're right, that's the maximum. Your second question about secondary listing in Johannesburg, we want to get that accomplished as soon as we close and do it simultaneously. We'll work towards that because we think it's important to keep the vehicle available for investors in a very key market for the new combined company, which is South Africa, key market for us. Okay, thanks. Thanks. Thank you. Your last question is from Yasser Amwa of Kingway Capital. Please ask your question. Just a quick question on SAB. If the acquisition goes to SAB has multiple listed subsidiaries that are a key part of each country's capital markets and just general development. What do you intend to do with them? Well, again, it's too far at this point to speculate about this kind of it's important, but it's at this point, it's too soon to speculate on those matters. But it's not unreasonable to expect them to remain listed sort of like Ambev or? Yes, again, this is an ABI transaction. And again, other than that, given the UK rules, there's not much more I can comment. Sorry about that. Sure. Thank you. Thank you. Thank you. Thank you. Okay, Tracy. So let me just say a couple of things here to finish the call. So first, I mean, a couple of four things. First, I think it's clear that the public shareholders should only focus on the cash offer. Both instruments cash and partial short term are available to all, but the public shareholders should focus in our opinion on the cash offer, which commands a 44% premium to the last and historic price. 2nd, this is a full price. This is highly attractive in our opinion to the SABMiller shareholders. It's a 44% premium to the unaffected price. To sustain a value at this level requires hard currency EBITDA growth far in excess of what the market is projecting for the standalone company. So again, it's a price that's cash and it's now. We feel that the stars have aligned. Altria is supporting. Altria is the SABMiller's largest shareholder. We think this price is one that the SAB Board should recommend. And in terms of deal certainty, we've done deals before. We used to deal with regulatory issues. We're used to raising financing. So we have a very experienced team that are used to get deals done. And second, and lastly, I would encourage all of you to encourage their board to engage with us. With that, I'd like to conclude the call and thank you for your time. Thank you very much. All the best. Have a great day. Bye. Thank you. That does conclude this conference for today. Thank you all for participating. You may all disconnect.