I have my own theory that the market is betting the merger won't go through, but I'd like to hear from other people.
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Correct. You sometimes see that after an offer is made, the share price exceeds that of the offer as the market expectation is there is going to be interloper providing a further premium. As SABMiller is so large, there is no chance this is going to happen so there is effectively only downside risk being put on the share price by the market (antitrust risks, financing falls through, etc.).
TLDR; there is no upside beyond the offer price until a merger is consummated. If you feel differently, you have identified an arb opportunity for yourself
Why do you think it will be broken up? (Curious as to the reason not questioning your ability or anything like that) From what I've read they don't interlope in that many locations and where they do interlope they can sell that piece off and not lose much. I.E. the venture with MillerCoors.
I don't think it will get broken up, I'm just saying there is a risk of it happening and no chance of a higher offer. As @thebrofessor said, even with 99% certainty the transaction will happen, the market will (in theory ...) take that into account by trading slightly below the offer price as there is always some risk that it doesn't happen.
I suppose there could (again in theory) be a situation where a break-up free was greater than the probability-adjusted value of the risk of the transaction falling through, in which case it could trade above the offer price? I would imagine this situation would work similar to a dividend, where once paid the share price would fall once for the cash distribution and then trade down to remove the offer premium
What about the divestitures?
I don't think the divestitures should affect the market price. Regardless of the divestitures, Ambev is offering 67$, thereabouts, per share. So, as an investor now you shouldn't care about the divestitures because you're guaranteed 67$. Now, the divestitures might piece into the puzzle as to why people think the merger may fall through. Ambev might find that the divestitures are so extensive that it isn't worth pursuing the acquisition.
punchey is directionally correct but it's important to know that this happens with every single merger offer ever, it's why merger arbitrage investment strategies exist. beyond the risk that the deal doesn't consummate because of antitrust concerns, there's also the opportunity cost with owning the stock and waiting for the deal to close.
for example, company A offers to buy company B all cash at $100 per share, company B stock goes to 95, 5.25% spread between current price and acquisition price.
investors who then buy company B at 95 have to decide if earning ~5.25% on an uncertain time period is worth it. if it is, the spread will stay or narrow, if not, the spread will widen. some of the managers I've talked to that do merger arb say that the spread they're capturing has a lot to do with the risk free rate of money, but it's also very specific to the deal, the industry, etc., so it's not easy to say well if the spread is 400bps higher than the 10y, I'll buy the stock, it's more complicated than that.
Very interesting. I bought it the other day for the hell of it pretty much. So, we will see how that works for me.
The antitrust risk comes from a post merger perspective. Now just because an antitrust lawsuit is started doesn't mean the merger won't go through. Like in the Comcast TWC proposed deal Comcast was going to spin off something like 4MM subscribers to the other cable companies. In this case though actual companies would be spun off into new ownership structures. In reality those can be some of the best investment opportunities. Depending on how the all of the chips fall and if subsidiaries are sold private or go public you could be left with shares of the new company plus shares of the public subsidiaries. This isn't a common thing that happens but it is possible.
They will likely try to strike a deal with regulators, but that didn't go well for Sysco/us foods
This isn't correct. It is subject to UK Takeover Plan code which the deal has yet to satisfy preconditions for approval for. In this instance, preconditions include addressing antitust / competition law concerns, most notably in China and the US. Hence, it is currently subject to antitrust risk
So most anti-trust provisions don't just look to whether it becomes monopolistic in their country but rather the whole world?
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