Megabrew Battle Goes to Second Round

(Bloomberg) -- British justice has dealt a setback to AB InBev's attempted takeover of rival brewer SABMiller. A High Court judge said on Tuesday that SAB's small investors should have the same say as its two top shareholders in approving the Belgian brewer's 73.1 billion pounds ($96.4 billion) bid. As a result, an InBev victory is not assured.

The ruling matters because SAB's shareholder register is divided. U.S. cigarette maker Altria and the Santo Domingo brewing dynasty own 40 percent. They like InBev's offer, including the tax-efficient structure designed for them. Hedge funds also like the deal as it will give them a quick profit. Against them are some long-term shareholders, such as Aberdeen Asset Management, who've said previously that the transaction is unfair or too cheap, something Gadfly has also argued.

Mindful of the conflict, SAB's board wanted the big holders to vote separately on the deal from everyone else. The court agreed. The top-two investors will now sit out the vote, leaving it up the other 60 percent of the register. The deal will need 75 percent approval.

This is an example of how British governance can protect minorities. SAB's directors, including the Altria and Santo Domingo nominees, were united on the split vote idea. Yet Altria itself petitioned against it. In other words, SAB's directors, regardless of their affiliation, remembered their duty to act for all shareholders. Good on them.

What now? The shareholder vote is hard to predict, because some hedge funds are invested in SAB via tax-saving derivatives known as contracts for difference and these don't carry votes. The only sure way for such funds to vote in favor of the deal would be to flip their positions into stamp-tax bearing SAB shares.

If a significant portion of SAB votes stay trapped in CFDs, that would make it easier for Aberdeen and others to block a deal. Berenberg analysts have done some interesting work on this. In the 2015 annual general meeting, before SAB was subject to bid speculation, votes were cast for 84 percent, or 1.35 billion, of the company's shares. Suppose this is a fair reflection of turnout. Now strip out the 655 million shares held by Altria and the Santo Domingos and assume that about 325 million of the remainder -- 20 percent of the overall register -- are trapped in CFDs. That would leave investors with about 400 million shares deciding the poll. Just 100 million -- 25 percent -- votes would be needed to block the transaction, a mere 6 percent of the overall register.

Megabrew Battle Goes to Second Round

Berenberg's analysis is punchy and theoretical: turnout may be higher and votes trapped in CFDs much lower. Still, minority shareholders have a voice. InBev's cash offer is 45 pounds per share, a 53 percent premium to SAB's battered stock price in mid-September. British American Tobacco, a comparable U.K. leisure company, has risen 43 percent in the same period after sterling's Brexit depreciation. It's easy to believe SAB shares would be hovering around 40 pounds without InBev's interest, making the Belgian brewer's offer look unattractive. Investors can at least make a choice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Chris Hughes in London at