Beer buyout brews regulatory concern

BY Matt Atkins

Glasses were raised all round at Anheuser-Busch InBev (InBev) earlier this month, when the world’s largest brewing company announced a record breaking agreement with British rival SABMiller. In a deal that ranks among the top five largest in corporate history, on 13 October SABMiller accepted “in principle” a takeover offer of £68.6bn, or £44 a share. However, the jubilation in both camps has subsided somewhat as regulators worldwide cast a suspicious eye over the deal.

When completed, the takeover will see InBev’s dominance of the global beer market swell significantly. At present, the company holds a 20.8 percent share of the sector, set to increase to 29.7 percent upon the deal’s completion. InBev, which already dominates the market, will dwarf its closest rivals Heineken, Calsberg and China Resources Enterprise, which hold 9.1 percent, 6.1 percent and 6 percent of global sales, respectively.

With SABMiller producing brands including Peroni and Grolsch, and InBev’s products including Budweiser, Stella Artois and Corona, the resulting brewing giant will produce approximately one in three of every beer consumed globally. But even as InBev circled SABmiller, the smaller firm was quick to point out that any merger would create problems with regulators in the US and China. It now appears this was no hollow warning.

On 20 October, the US Senate Judiciary Subcommittee on Antitrust announced plans to examine the takeover. “We want to know what the impact is on American consumers, how it affects small craft brewers to be able to get product to market and how [AB InBev] would ensure this wouldn't have a major impact on price or market entry,” stated Amy Klobuchar, Democratic Senator and one of the top lawmakers on the subcommittee.

While the US Justice Department remains the sole arbiter of antitrust oversight in the US, the Senate subcommittee hearing will offer US lawmakers a chance to grill key players in the beer industry on the consequences of a combined InBev-SABMiller. InBev claims that it has already examined any potential regulatory issues and “intends to work proactively with regulators to resolve any concerns”. Indeed, the brewer is understood to have gauged the interest of Molson Coors about buying-out SABMiller’s 58 percent stake in their US joint venture, MillerCoors, in an attempt to ease concerns over regulatory issues.

The takeover faces further hurdles in China where antitrust regulators are set to play a decisive role in shaping the final deal. This is not the first time that the beer behemoth has come under Chinese scrutiny. The creation of Anheuser-Busch InBev in 2008 made antitrust history as it was the first high-profile case to test the powers of China’s merger watchdog in the Ministry of Commerce (MOFCOM). Since then, the unpredictable regulator has gone on to become one of the three key merger jurisdictions alongside US agencies and the European Commission. While China is unlikely to halt the deal, it is expected that MOFCOM will force InBev to offload SAB’s stake in China’s joint venture, Snow, the world’s best-selling beer – a heavy price to pay which may see investors question the deal’s price tag.

Criticism of the deal has not been limited to fears of monopolisation. Citing InBev’s reputation for aggressive cost-cutting, and concerns the deal will lead to heavy job losses, a number of South African unions have voiced their opposition to the bid. In addition, SABMiller’s fourth-largest shareholder, South Africa’s Public Investment Corp (PIC), recently met with InBev chief executive Carlos Brito to discuss such concerns. PIC, which owns a 3.14 percent stake in SABMiller, has previously demanded that the combined company be listed on the Johannesburg Stock Exchange and that all efforts are made to preserve local jobs. It has also said that InBev must support secondary industries linked to brewing, such as agriculture, and bring real benefits to the South African economy.

Placating any African opposition to the deal will be of great importance to InBev, which views access to the continent as a ‘critical driver’ of the buyout. Africa was SABMiller's fastest growing region in the year ended 31 March 2015, with revenue jumping 9 percent to $7.5bn and sales volume rising 5 percent. The purchase of SABMiller will provide InBev with an opportunity to make headway in this growing market, which it has so far failed to capture. SABMiller’s existing expertise, distribution networks and infrastructure will certainly help InBev mitigate the traditional risks associated with investing in this market.

Despite the hoops that InBev may be forced to jump through, the company remains committed to completing the deal. The beer giant sought to reassure investors on 28 October that the takeover remained on track, confirming it had ample financing for the deal, which could be raised “at short notice”. The UK Takeover Panel has also agreed to an extension of the deal’s deadline, and InBev now has until 5pm on 4 November to make a formal offer. However, the brewing giant would be wise to take this time to consider the sacrifices it may be forced to make in the pursuit of its competitor.

Wallgreens Boots Alliance agree Rite Aid merger

BY Richard Summerfield

The pharmaceutical sector has seen considerable mergers & acquisitions activity in 2015, with more than $520bn worth of deals completed this year, according to Dealogic. As 2016 creeps into view, that activity shows no signs of slowing. This week, global pharmacy powerhouse Walgreens Boots Alliance announced it had agreed a deal to acquire its US rival Rite Aid in a $17.2bn all cash deal.

Though the deal has been approved by the boards of both companies, the transaction is still subject to the endorsement of the shareholders of Wallgreens and Rite Aid, as well as other customary closing conditions, including winning the approval of the US Federal Trade Commission.

The deal, expected to close in the second half of 2016, will create one of the largest pharmaceutical companies in the world, combining of the US’ second and third largest pharmacy chains and creating a company with more than 12,800 locations across the country. Once the deal has been completed, Rite Aid will be a fully owned subsidiary of Wallgreens, and continue to operate under its own name going forward.

Wallgreens offered $9 per share in cash for a total enterprise value of approximately $17.2bn, including the assumption of existing net debt. The purchase price represents a premium of 48 percent to the closing price per share on 26 October 2015, the day before the agreement was signed.

“Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy. In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, wellbeing and beauty products and services,” said Walgreens Boots Alliance executive vice chairman and chief executive, Stefano Pessina.

“This combination will further strengthen our commitment to making quality healthcare accessible to more customers and patients. Our complementary retail pharmacy footprints in the US will create an even better network, with more health and wellness solutions available in stores and online," he added.

Walgreens will finance the transaction through a combination of existing cash, assumption of existing Rite Aid debt and issuance of new debt. Furthermore, the company expects to realise synergies in excess of $1bn as a result of its acquisition of Rite Aid.

“Joining together with Walgreens Boots Alliance will enhance our ability to meet the health and wellness needs of Rite Aid’s customers while also delivering significant value to our shareholders,” said Rite Aid chairman and chief executive, John Standley.

He continued: “This transaction is a testament to the hard work of all our associates to deliver a higher level of care to the patients and communities we serve. Together with Walgreens Boots Alliance, the Rite Aid team can continue to build upon this great work through access to increased capital that will enhance our store base and expand opportunities as part of the first global pharmacy-led, health and wellbeing enterprise.”

News: Walgreens says will buy smaller drugstore rival Rite-Aid

The champagne is on ICE

BY Richard Summerfield

US exchange operator International Exchange Inc (ICE) is to acquire Interactive Data Corp (IDC) for around $5.2bn.

According to ICE, the agreed price will include $3.65bn in cash and $1.55bn in ICE stock. The deal is expected to close by the end of 2015, subject to the approval of the shareholders of both companies. The deal is ICE’s biggest acquisition since the company’s takeover of the New York Stock Exchange. The company is believed to have beaten competition from rival exchange operator Nasdaq and financial data publisher Markit in order to agree a deal for IDC.

ICE believes that the deal will generate cost synergies of $150m, which will be largely realised within three years. "This transaction furthers our expansion into meeting the financial information needs of our market participants globally. With our diverse markets across virtually all asset classes, IDC will enable us to address more growth opportunities by leveraging the distribution and reach of our complementary global platforms for trading, clearing and data on a combined basis," said ICE chairman and chief executive Jeffrey C. Sprecher, in a joint statement announcing the deal. "With IDC as the cornerstone in the next phase of extending our services, we will build on our track record of solid execution on integration and innovation by focusing on the needs of our customers in the evolving data services marketplace."

Interactive Data, based in Bedford, Massachusetts, provides financial data to banks, hedge funds, mutual funds and other users. "Today’s announcement marks the next step in an exciting journey for IDC," said Stephen Daffron, chief executive of IDC. "With ICE, we have the long-term capital, strategic support and collective set of relationships to further grow our company and evolve our platform in the rapidly-changing capital markets landscape. We have enjoyed our partnership with Silver Lake and Warburg Pincus and thank them for their contributions to our success, as well as for their leadership in several strategic and technological initiatives that strengthened the company’s growth outlook."

The sale to ICE will see IDC’s owners, private equity firms Silver Lake and Warburg Pincus, exit their $3.4bn investment in the company after more than five years. They had previously pursued an alternative exit - until very recently intending to take IDC public. “It has been our privilege to partner with IDC," said Mike Bingle, managing partner of Silver Lake and Jim Neary, managing director and a member of the executive management group of Warburg Pincus. "Since our investment in 2010, the company has laid the foundation for long-term growth, by launching a state-of-the-art technology platform, developing innovative new products such as its cutting-edge real-time pricing solution and maintaining an unwavering focus on value for its clients. IDC is thrilled about its future with ICE, and its continued leadership in financial data services."

News: ICE to buy market data firm Interactive Data in $5.2 billion deal

Global AUM set to soar - PwC

BY Richard Summerfield

Global assets under management are expected to climb to around $102 trillion by 2020 according to a new report from PwC.

The report – Asset Management 2020 and beyond: Transforming your business for a new global tax world – notes that the boom in AUM is due to be caused by significant changes to global tax structures in the coming years. Furthermore, global tax functions, according to PwC, will be critical in determining those players in the market who will be best positioned to win a greater share of business over the next five years.

"In-house asset management tax teams will need to evolve to deal with perpetual audits and to engage with tax authorities on a frequent basis to influence policy and help guide the implementation of tax rules," PwC's William Taggart, Global Tax Leader, Asset Management said. "Asset managers will need to ensure highly-skilled tax people are brought into the heart of the business. The tone needs to be set at the top. The tax function is critical to the entire operation and senior management will need to make sure this is well understood," Mr Taggart added.

Asset managers, according to PwC will play a considerably different and significant role in investment businesses moving forward, this increased emphasis on asset managers will likely be caused by the retreat of banks and insurers from the investing space. Accordingly, PwC believe that a “new breed of global mega-managers will attract huge focus from tax authorities, which will have specialist teams with the capabilities to carry out much more detailed enquiries than in the past and the powers to request real-time investor-related information.”

Equally, tax transparency will be a key consideration by 2020 given that both the Common Reporting Standard (CRS) and global tax reporting will have become a reality.

By 2020, tax authorities would have specialist teams with the capabilities to carry out much more detailed enquiries than in the past, and the powers to request real-time investor-related information. To that end, in-house asset management tax teams will be required to evolve to deal with an expanded auditing program, they will also have to engage more regularly with tax authorities in order to influence policy.

Report: Asset Management 2020 and beyond: Transforming your business for a new global tax world

Q3 2015 sees US corporate bankruptcies plateau

BY Fraser Tennant

The prevalence of corporate bankruptcies in the US – which has been declining steadily over the past seven years – has now largely levelled off according to new figures released this week by BankruptcyData.com.

The ‘Q3 2015 Business Bankruptcy Filing Report’ – which provides a snapshot of the most recent quarter's business bankruptcy landscape – reveals that there were 22,680 corporate bankruptcy filings in the first three quarters of 2015, a 16 percent drop in comparison to Q3 2014 (26,992 filings).

Furthermore, the BankruptcyData.com report highlights the fact that there has been an average of 120 filings per business day so far in 2015, with March proving to be a particularly busy month for bankruptcies among public and private companies.

Drilling-down, the filings in the report are broken down into elements such as industry, sales volume and company size, so that insight into the most recent activity in the business bankruptcy sector can be drawn.

In terms of industry, key findings in the report include the disclosure that: (i) the service industry (the US economy's biggest employer) generated the largest percentage of overall bankruptcies in Q3 2015 with 34.78 percent; and (ii) the service industry's 2015 year-to-date bankruptcy figure of 35.95 percent is down 10 percent from the same time period in 2013, reflecting the relative health of the industry compared to other sectors like manufacturing and finance/insurance/real estate – the bankruptcy percentage figures of which have grown over the past year.  

The report’s figures also highlight the recent surge in mining and energy–related bankruptcies, with the mining sector recognised as having generated 10 percent of overall bankruptcies in Q3 2015 (typically this figure is 1 to 2 percent).

Elsewhere in the report, the small business sector, often considered the ‘backbone of the economy’ in the US, is revealed as having seen the most bankruptcies in Q3 2015, with 75 percent of all business bankruptcies filed by companies with $2.5m in sales or less. Likewise, businesses with less than 50 employees generated 84 percent of all bankruptcies in Q3 2015.

Additional key findings include that for the first time in several quarters, New York has surpassed California as the state that contributes the largest percentage of overall bankruptcies, generating 14.53 percent in Q3 2015. The state of Virginia also experienced a large jump in their percentage of overall bankruptcies: moving from 1.76 percent of all bankruptcies in Q1 2015 to 7.59 percent in Q3 2015.

Whilst forecasting that the downward spiral of bankruptcies seen in recent years is likely to continue, the BankruptcyData.com report does provides a word of warning for sectors and industries: “Other factors could lead to an eventual increase in bankruptcies across all sectors: interest rates will eventually rise and reach a point at which they will prevent the small to mid-sized business owner from taking on more debt and bankruptcy will have to be considered. The number of over-leveraged balance sheets continues to grow, which means a distressed cycle may not be too far off.”

Report: BankruptcyData.com – QUARTERLY REPORT of Business Bankruptcy Filings

 

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