SABMiller Doubles Cost Savings Target as AB InBev Circles
ABMiller doubled a pledge to cut costs as it seeks to rally shareholders around its rebuttal of Anheuser-Busch InBev NV, the larger rival seeking to buy the UK brewer for a record £65.2 billion ($100 billion).
Annual savings in the 12 months through March 2016 should exceed $430 million and reach $1.05 billion by 2020, the brewer said Friday in a statement. The company had previously targeted about $500 million 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 regulation rules, AB InBev has until 14 October to make a formal offer for SABMiller. Altria Group, SABMiller’s largest shareholder with a 27 per cent 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 defense,” said Trevor Stirling, an analyst at Sanford C. 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 new cost 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 0.3 per cent to 3,653 pence in London. AB InBev’s proposal of 4,215 pence a share in cash that most stockholders would receive is 44 per cent above where SABMiller was trading before speculation of a deal.
“Our recent trading statement highlighted our accelerating growth in the second quarter,” said Chief Executive Officer Alan Clark. “Another key plank of our strategy is to build a globally integrated organization to optimize resource, win in market and reduce costs.”
Clark said SABMiller has a 38 per cent 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 39.4 per cent last year. Including all of SABMiller’s markets, the brewer’s most recent full-year Ebitda margin was 25.4 per cent on an adjusted basis, or 29.5 percent unadjusted.
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