MO Altria Group Inc

By Saabira Chaudhuri and Ian Walker 

LONDON-- Anheuser-Busch InBev NV and SABMiller PLC are back at the negotiating table.

AB InBev on Tuesday raised its offer for London-based SABMiller in their proposed $100 billion-plus beer megamerger, seeking to allay investor concern following a sharp fall in the value of the British pound. Sterling plunged after the U.K. vote to leave the European Union last month, upending the economics of the complex deal for some SABMiller shareholders.

AB InBev, the world's largest brewer, said the sweetened offer was its final one. SABMiller, in its own statement, said it has hired Centerview Partners to give it financial advice following the recent currency volatility, and that its board would consult with shareholders and meet to formally review the offer. It said the chairmen of both brewers held talks on Friday, but they didn't discuss the terms of a new deal.

The deal, formally announced in November, was expected to close in the latter half of this year. The 11th-hour renegotiations come after both companies spent months winning regulatory approval for the megamerger, agreeing to sell big chunks of their business in the process. That all raises the stakes for both to reach a new deal.

The Belgian-based brewer said it will now pay GBP45 a share for its U.K.-listed rival, valuing SABMiller at about GBP79 billion ($103.81 billion), up from its previous offer of GBP44 a share, or about GBP71 billion. The new terms show the deep decline in the pound: The original offer was worth about $108 billion at November's exchange rates.

Bernstein estimates that the increased offer represents an 8% premium to the "fair value" of SABMiller. That is up from 6% before the increased offer but is still sharply below the roughly 33% premium when AB InBev's approach was first announced in October, the firm noted.

In late-morning trading Tuesday, SABMiller shares were down 0.4% to GBP44.23 in London after an earlier modest rise. AB InBev shares were up 0.7% to EUR115.60 ($126.94) in Brussels.

Hedge funds including Elliott Management Corp. and TCI Fund Management Ltd. have built stakes in SABMiller in recent days and have been agitating for a higher offer, according to a person familiar with the matter.

For 41.6% of stock, AB InBev created a partial-share alternative, essentially a combination of cash and unlisted stock, designed to allow its two largest shareholders, Altria Group Inc. and the Santo Domingo family's BevCo Ltd. investment vehicle, to retain holdings and board seats.

The brewer has now revised the alternative's terms, offering 0.483969 restricted shares and GBP4.6588 in cash. The revised partial-share alternative values each SABMiller share at GBP51.14, based on its closing share price Monday.

The alternative--which includes a condition that shares be held for five years, hence making it unattractive for most investors--had previously translated into a lower per-share price of GBP41.85.

RBC analyst James Edwardes Jones said he had "already felt that ABI was paying a full price" and that the latest deal is even more expensive. AB InBev said it put in place currency hedges for GBP45 billion at an average rate of $1.53 to the pound before the post-Brexit slump. The pound has since swooned to $1.31, but AB InBev doesn't benefit from that weakness.

If the merger falls apart, AB InBev has committed to paying SABMiller a $3 billion breakup fee.

AB InBev's stock trades in euros, making its shares more valuable than the cash offer following the pound's decline and increasing the likelihood that other shareholders besides Altria and the Santo Domingo family would opt for the more valuable alternative. The alternative was designed to help AB InBev's largest shareholders with taxation and potential accounting issues, key to securing their backing for the deal. If other investors choose to opt for the partial-share alternative, Altria could lose its two seats on the combined company's board, and some analysts have said the tobacco company might lose its ability to record income from the beer business.

The two brewing giants agreed to their merger last November and the deal is expected to close in the second half of this year. The deal has already been approved by competition authorities in the U.S., the European Union, South Africa and several other jurisdictions, leaving Chinese approval the last big antitrust hurdle to the combination.

The deal is critical to AB InBev's growth. Buying SABMiller allows AB InBev to reduce its reliance on the U.S., where it has had trouble getting younger people to drink more Budweiser, and gives it access to the growing African market, which is expected to drive beer-industry sales.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

July 26, 2016 06:52 ET (10:52 GMT)

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