19th Jul 2005 07:01
SABMiller PLC19 July 2005 Ref: 14/2005 Not for release, publication or distribution, in whole or in part, in or into orfrom Australia, Canada or Japan SABMILLER and Bavaria ANNOUNCE A MAJOR TRANSACTION IN LATIN AMERICA London and Johannesburg, 19 July 2005. SABMiller plc ("SABMiller") announces amajor investment in Latin America through a transaction with the Santo DomingoGroup (the "SDG") in which SABMiller will obtain a controlling interest inBavaria S.A. ("Bavaria") (the "Transaction"). The Transaction will be effectedby way of a merger, and will result in the SDG owning an economic interest ofapproximately 15.1% in SABMiller. The implied equity value of Bavaria is $4.8billion and, including net debt and minority interests, the total impliedenterprise value for 100% of the Bavaria group is approximately $7.8 billion. Bavaria is the second largest brewer in South America with leading marketpositions in Colombia (99% of the beer market), Peru (99%), Ecuador (93%) andPanama (79%) where its key brands are Aguila, Cristal, Pilsener and Atlas,respectively. The combined business will have annual beer volumes ofapproximately 175 million hectolitres, pro forma aggregated net revenues ofapproximately $12.5 billion and pro forma aggregated EBITDA of approximately$3.5 billion. Bavaria is highly complementary to SABMiller's existing operations and providesaccess to a major additional source of profitable growth in one of the globalbeer industry's most strategically important and fastest growing regions. TheAndean region of South America is forecast to achieve a compound annual growthrate in beer volumes of 4% over the next five years, well in excess of theglobal industry average of approximately 2%. Following the Transaction, SABMiller will have a leading position in SouthAmerica, in addition to its existing strong positions in the USA, Europe, Africaand Asia, establishing SABMiller as a leading brewer across 5 continents.Bavaria will further diversify SABMiller's existing portfolio of businesses andbrands in highly attractive growth markets. SABMiller has a successful track-record and demonstrable experience in themanagement of comparable operations in developing markets. It believes that theapplication of its best operating practices will enable it to generatesignificant earnings enhancement in Bavaria, continuing the positive revenue andearnings momentum that Bavaria has experienced in the last several years.SABMiller intends to reduce Bavaria's operating costs and invest in thedevelopment of a portfolio of distinct and differentiated brands to drivefurther revenue growth. Annual cost synergies and operating improvements are estimated to reach $120million by March 2010. SABMiller also expects substantial profit improvementsfrom revenue enhancement initiatives over the same period. On a pro forma basis, the Transaction is expected to be earnings per shareaccretive, before cost and revenue synergies for the pro forma financial yearending 31 March 2006. The Board is confident that the IRR of the Transaction is comfortably in excessof its cost of capital and that based upon its assumptions, the Transaction willgenerate positive economic profit by the fifth or sixth full financial year ofownership. The Transaction Pursuant to a merger between a subsidiary of BEVCO LLC ("BC") (the holdingcompany of the SDG's interest in Bavaria) and a wholly owned subsidiary ofSABMiller, SABMiller will obtain BC's indirect 71.8% interest in Bavaria andwill issue 225 million SABMiller ordinary shares (the "Consideration Shares")with a value of approximately $3.5 billion to the SDG based on a weightedaverage US$ SABMiller share price agreed between the parties. As a result, BCwill own an economic interest of approximately 15.1% in SABMiller and will besubject to a five year lock-up, subject to certain exceptions including limiteddisposals from the third year. BC will have the right to nominate two directorsfor appointment to the SABMiller Board. In addition, Alejandro Santo Domingoand Carlos Alejandro Perez, members of the executive committee of Bavaria'sBoard, will serve as Vice Chairmen of a newly created board which will haveoversight of SABMiller's operations in Latin America. Following completion of the Transaction, SABMiller will make a cash offer toacquire the shares held by minority public shareholders of Bavaria in Colombia,at a price per Bavaria share of $19.48, which is the value per share that wasused as a reference for the Transaction. SABMiller will also make a cash offerto acquire the listed voting "A" shares in Bavaria's subsidiary in Peru, and hasagreed to acquire for cash certain minority interests in certain othersubsidiaries. The total cash requirement for these transactions (together the"Minority Transactions") is estimated to be approximately $2.1 billion. Financial information Bavaria's turnover and EBITDA for the year ended 31 December, 2004 underColombian GAAP was $1,904 million and $797 million respectively. In the firstquarter of 2005, Bavaria reported an increase in turnover of 18% to $496 millionand an EBITDA increase of 24% to US$212 million. On this basis, Bavaria's lasttwelve months EBITDA to 31 March 2005 was $837 million. Trading in the secondquarter of 2005 has been strong and Bavaria expects to show a higher year onyear growth rate than that achieved in the first quarter of the year. On an IFRS basis, the estimated underlying EBITDA of Bavaria for the year ended31 December 2004 was approximately $737 million. The principal differencesbetween Bavaria's Colombian GAAP and IFRS EBITDA for the 2004 year relate toreclassification of items shown as non operating costs under Colombian GAAP tooperating costs under IFRS. As at 31 December 2004 Bavaria had gross assets of approximately $5.2 billion,profit before tax of $430 million and net debt of $1.9 billion on an IFRS basis. The combined business will have a strong balance sheet with an estimated proforma net debt to aggregated EBITDA ratio of approximately 1.8 times, supportedby strong cash flow generation. Commenting on the Transaction, Graham Mackay, Chief Executive of SABMiller,said: "We are excited by the enhanced prospects for growth, in a strategicallyimportant market, which the combination with Bavaria brings. We are confidentthat together the business will generate considerable benefits for allstakeholders. "We are delighted to welcome the Santo Domingo Group and the management andemployees of Bavaria to the SABMiller group. I believe that they will provide asignificant contribution to the future success of SABMiller. Through thistransaction, we will be one of the largest international investors in the Andeanregion, and we look forward to playing an important role in the welfare of theselocal communities." Commenting on the Transaction, Julio Mario Santo Domingo, Chairman of Bavariasaid: "We are enthusiastic about joining forces with SABMiller. SABMiller has anexcellent strategy and a strong management team with a demonstrated track recordfor creating shareholder value, through continued growth and increasingprofitability in both developing and developed markets. "The Bavaria management team and all the employees at Bavaria deserve credit andacknowledgement for their successful transformation of the company into thesecond largest brewer in South America. "We are particularly proud of the fact that, for the first time, Colombianinterests will have such an important role in a company of the size andmagnitude of SABMiller and that SABMiller will establish their South Americanregional headquarters in Bogota." The Transaction is conditional upon the approval of SABMiller's shareholders andupon there having been no material adverse change in the businesses of Bavariaor SABMiller. A circular is expected to be posted to shareholders within threeto four months and, if approved by shareholders, completion of the Transactionwill follow within two business days of the Extraordinary General Meeting. Altria, SABMiller's largest shareholder with 24.99% of the current voting rightsin SABMiller, is fully supportive of the Transaction. Merrill Lynch is acting as financial adviser to SABMiller. JPMorgan Cazenove isacting as corporate broker and provided certain other advice to the Company.Merrill Lynch is acting as joint corporate broker to the Transaction. Lehman Brothers, Morgan Stanley and Citigroup are acting as financial advisersto BC. Citigroup, Lehman Brothers and Morgan Stanley are acting as financialadvisers to SDG. This summary should be read in conjunction with the full text of the followingannouncement. This announcement, a copy of the slide presentation and video interviews withmanagement, including SABMiller Chief Executive, Graham Mackay, are available onthe SABMiller website at www.sabmiller.com and at www.cantos.com, also availablein audio and full transcript. There will be an analyst presentation beginning at 10.00 am BST in theAuditorium, Merrill Lynch Financial Centre, 100 Newgate Street, London. InJohannesburg there will be a video link to the presentation in London (11.00 amlocal time) in the Jacaranda Room, Intercontinental Sandton Sun and Towers,Fifth Street, Sandown, Sandton. The live webcast of the presentation will beavailable on www.sabmiller.com in both English and Spanish languages. Analyst presentation dial-in (allowing participation in Q&A) : +44 20 7365 1856,access code: 5634297# Replay facility: +44 20 7784 1024, access code: 5634297# (available for 7 days). For the Americas, there will be an analyst audio webcast at 10:00 EDT with aconference call allowing participation in Q&A. This audio webcast will beavailable on www.sabmiller.com. Americas presentation dial-in (allowing participation in Q&A): +1 718 354 1172,access code: "SABMiller" Replay facility: +1 718 354 1112, access code: 8724794 (available for 7 days). Both presentations will also be webcast live on www.sabmiller.com. For further information, please contact: SABMiller plc Tel: +44 20 7659 0100 Sue Clark Director of Corporate Affairs Mob: +44 7850 285471Gary Leibowitz Vice President, Investor Relations Mob: +44 7717 428540Nigel Fairbrass Head of Media Relations Mob: +44 7799 894265 Maitland Philip Gawith Tel: +44 20 7379 5151Suzanne Bartch Merrill Lynch Tel: +44 20 7628 1000 Simon Mackenzie-Smith Managing DirectorFederico Aliboni Managing DirectorMark Astaire Managing Director (Corporate Broking) JPMorgan Cazenove (Corporate broker) Tel: +44 20 7588 2828David Mayhew ChairmanIan Hannam Managing DirectorArjun Khullar Director High resolution images are available for the media to view and download free ofcharge from www.vismedia.co.uk. B-roll material will be made available free ofcharge at 07:15 GMT to 07:30 GMT and also 14:00 GMT to 14:15 GMT on APTN GlobalVideo Wire. B-roll material will also be made available via BT Tower FL / PUF 29at 07:15 GMT to 07:30 GMT. This announcement has been issued by SABMiller and is the sole responsibility ofSABMiller. Merrill Lynch is acting for SABMiller in connection with the proposedtransaction and no one else and will not be responsible to anyone other thanSABMiller for providing the protections afforded to clients of Merrill Lynch norfor providing any advice in relation to the transaction. JPMorgan Cazenove is acting for SABMiller in connection with the proposedtransaction and no one else and will not be responsible to anyone other thanSABMiller for providing the protections afforded to clients of JPMorgan Cazenovenor for providing any advice in relation to the transaction. Lehman Brothers, Morgan Stanley and Citigroup are acting for BC in connectionwith the proposed transaction and no one else and will not be responsible toanyone other than BC for providing the protections afforded to clients of LehmanBrothers, Morgan Stanley and Citigroup, or for providing any advice in relationto the transaction. Citigroup, Lehman Brothers and Morgan Stanley are actingfor SDG in connection with the proposed transaction and no one else and will notbe responsible to anyone other than SDG for providing the protections affordedto clients of Citigroup, Lehman Brothers and Morgan Stanley, or for providingany advice in relation to the transaction. This announcement is for information only and does not constitute an offer or aninvitation to acquire or dispose of any securities or investment advice or aninducement to enter into investment activity. This announcement does notconstitute an offer to sell or issue or the solicitation of an offer to buy oracquire SABMiller securities in any jurisdiction. The distribution of this announcement may be restricted by law. Persons intowhose possession this announcement comes are required by SABMiller to informthemselves about and to observe any such restrictions. This announcement includes 'forward-looking statements'. These forward-lookingstatements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. All statements other than statements ofhistorical facts included in this announcement, including, without limitation,those regarding SABMiller's financial position, business strategy, plans andobjectives of management for future operations (including development plans andobjectives relating to SABMiller's products and services) are forward-lookingstatements. Such forward-looking statements involve known and unknown risks,uncertainties and other important factors that could cause the actual results,performance or achievements of SABMiller to be materially different from futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based onnumerous assumptions regarding SABMiller's present and future businessstrategies and the environment in which SABMiller will operate in the future.These forward-looking statements speak only as at the date of this announcement.SABMiller expressly disclaims any obligation or undertaking to disseminate anyupdates or revisions to any forward-looking statements contained herein toreflect any change in SABMiller's expectations with regard thereto or any changein events, conditions or circumstances on which any such statement is based. SABMILLER AND BAVARIA ANNOUNCE A MAJOR TRANSACTION IN LATIN AMERICA Introduction SABMiller has entered into a transaction with the SDG through which SABMillerwill obtain a controlling interest in Bavaria through a merger. As a result, BCwill own an economic interest of approximately 15.1% in SABMiller and will besubject to a five year lock-up, subject to certain exceptions including limiteddisposals from the third year. Bavaria is the second largest brewer in South America with leading marketpositions in Colombia (99% of the beer market), Peru (99%), Ecuador (93%) andPanama (79%). The company also operates a malt plant in Chile and producesbeverages in Bolivia and Costa Rica. Bavaria's turnover and EBITDA for the year ended 31st December, 2004 underColombian GAAP was $1,904 million and $797 million respectively. Bavaria islisted on the Colombian Stock Exchange and also has listed subsidiaries in Peruand Ecuador. Terms of the Transaction SABMiller and BC entered into an agreement and plan of merger (the "MergerAgreement") on 18 July 2005, under which a wholly owned subsidiary of SABMillerwill be merged with a subsidiary of BC under Delaware law and will therebyobtain BC's indirect 71.8% interest in Bavaria. In return, SABMiller will issueto BC 225 million new ordinary shares, representing an economic interest ofapproximately 15.1% in SABMiller. Based on SABMiller's historical average shareprice and the weighted average £/$ exchange rate over the period agreed betweenthe parties, the value of the SDG stake is approximately $3.5 billion. Following completion of the Transaction, SABMiller will make a cash offer toacquire all the shares held by minority public shareholders of Bavaria inColombia at a price per Bavaria share of $19.48 ("the Colombian Minority Offer"), which is the value per share that was used as a reference for theTransaction. Assuming a 100% acceptance for the Colombian Minority Offer, thetotal cash requirement is estimated to be approximately $1.4 billion. SABMillerhas entered into agreements with Bavaria minority shareholders holdingapproximately 3.7% of the shares in Bavaria, pursuant to which they haveundertaken to accept the Colombian Minority Offer in respect of theirshareholdings. In addition, SABMiller will acquire the outstanding minorityinterest in Cerveceria Leona S.A. ("Leona"), a subsidiary in Colombia, for $176million in cash on completion. SABMiller will also make a cash offer to acquire the listed voting "A" shares inBavaria's subsidiary in Peru, U.C.P. Backus y Johnston S.A.A. ("B&J")representing the remaining 24% of the voting interest of B&J and the minorityinterests of its listed subsidiaries in Ecuador ("the Peru and Ecuador Offers").SABMiller has entered into an agreement with a major shareholder owning 24% ofthe listed voting "A" shares in B&J, pursuant to which they have undertaken toaccept the offer in respect of its shareholdings for $470 million in cash.SABMiller has estimated that, assuming a 100% acceptance for the Peru andEcuador Offers, the total cash requirement for the Peru and Ecuador Offers isapproximately $555 million. As of Monday, 18 July 2005, the last practicable date before this announcement,the implied value of 100% of the equity of Bavaria was approximately $4.8billion. Including net debt of approximately $1.9 billion as at 31 December2004 and minority interests of $1.0 billion, the total implied enterprise valuefor the full economic interest in Bavaria and all of its subsidiaries andassociates, is approximately $7.8 billion. The Transaction is conditional upon the approval of SABMiller's shareholders andupon there having been no material adverse change in the businesses of Bavariaor SABMiller. A circular is expected to be posted to shareholders within threeto four months and, if approved by shareholders, completion of the Transactionwill follow within two business days of the Extraordinary General Meeting. Rationale for the Transaction Bavaria is the second largest brewer in South America with leading marketpositions in Colombia, Peru, Ecuador and Panama. The company also operates amalt plant in Chile and produces beverages in Bolivia and Costa Rica. Since 2001, Bavaria has executed a successful international expansion programthat has culminated in the consolidation of its leadership positions in theAndean region. This strategy, combined with a strong emphasis in adopting bestpractices and focusing on the consumer and their needs, has increased Bavaria'sEBITDA from $262 million in 2000 to $797 million in 2004 and has positionedBavaria to continue to generate strong sales and earnings growth. Bavaria is highly complementary to SABMiller's existing operations and providesaccess to a major additional source of profitable growth in one of theindustry's most strategically important and fastest growing regions. The Andeanregion of South America is forecast to achieve a compound annual growth rate inbeer volumes of 4% over the next five years, well in excess of the globalindustry average of approximately 2%, based on population growth, attractivedemographics and economic growth, which will drive improvements in per capitaconsumption. The addition of Bavaria's highly attractive growth markets toSABMiller's existing portfolio will diversify the company's revenues andearnings. SABMiller has a successful track-record and demonstrable experience in themanagement of comparable operations in developing markets. It believes that theapplication of its best operating practices will enable it to generatesignificant earnings enhancement in Bavaria, continuing the positive revenue andearnings momentum that Bavaria has experienced in the last several years.SABMiller intends to reduce Bavaria's operating costs and invest in thedevelopment of a portfolio of distinct and differentiated brands to drivefurther revenue growth. Annual cost synergies and operating improvements are estimated to reach $120million by March 2010. SABMiller also expects substantial profit improvementsfrom revenue enhancement initiatives over the same period. Overview of Bavaria Bavaria, with beer and malt beverage volumes of 28.6 million hectolitres for thefiscal year ended 31 December 2004, is the second largest brewer in SouthAmerica, as well as being the largest brewer in the Andean region. Bavariaoperates 16 breweries, and enjoys significant market shares in each of itscountries of operation: Colombia (99%), Peru (99%), Ecuador (93%) and Panama(79%). The strength of these market shares is supported by established localbrands, a well-invested production base and efficient distribution networks.Bavaria's key brands include Aguila, Cristal, Pilsener and Atlas, which aremarket leaders in these respective countries. In addition to its brewinginterests, in the fiscal year 2004 Bavaria produced 5.7 million hectolitres ofwater, juices, soft drinks and milk. Bavaria is listed on the Colombian Stock Exchange. In addition to its own brewing operations in Colombia, Bavaria has a number ofcontrolling interests in the region, including a 69% interest in Leona(Colombia), a 76% voting interest and a 42% economic interest in publicly-listedB&J (Peru), a 94% interest in Compania de Cervezas Nacionales C.A. ("CCN") and a74% interest in Cerveceria Andina S.A. ("Andina") (Ecuador), and a 92% interestin Cerveceria Nacional S.A. ("CNP") (Panama). Following completion of theColombian Minority Offer and the Peru and Ecuador Offers (if all are acceptedin full) and other minority acquisitions, SABMiller will have a 100% interest inBavaria and in Leona, a 100% voting interest and a 57% economic interest in B&J,a 100% interest in CCN and Andina, and a 92% interest in CNP. Financial information Bavaria's turnover and EBITDA for the year ended 31 December, 2004 underColombian GAAP was $1,904 million and $797 million respectively. In the firstquarter of 2005, Bavaria reported an increase in turnover of 18% to $496 millionand an EBITDA increase of 24% to US$212 million. On this basis, Bavaria's lasttwelve months EBITDA to 31 March 2005 was $837 million. Trading in the secondquarter of 2005 has been strong and Bavaria expects to show a higher year onyear growth rate than that achieved in the first quarter of the year. On an IFRS basis, the estimated underlying EBITDA of Bavaria for the year ended31 December 2004 was approximately $737 million. The principal differencesbetween Bavaria's Colombian GAAP and IFRS EBITDA for the 2004 year relate toreclassification of items shown as non operating costs under Colombian GAAP tooperating costs under IFRS. As at 31 December 2004 Bavaria had gross assets of approximately $5.2 billion,profit before tax of $430 million and net debt of $1.9 billion on an IFRS basis. The combined business will have a strong balance sheet with an estimated proforma net debt to aggregated EBITDA ratio of approximately 1.8 times, supportedby strong cash flow generation. Adding value to Bavaria The board of SABMiller believes that the strengths of Bavaria and the beermarkets of the Andean region can be further developed through the introductionof SABMiller's best operating practices and management skills. SABMiller'srecord in developing and managing businesses in high growth emerging markets andof successfully introducing best operating practices should create opportunitiesfor increased value creation in Bavaria. SABMiller expects to improve Bavaria's performance through the followinginitiatives: • Category leadership Generate sustained per capita consumption growth through rejuvenation of brandidentities and packaging, curtailed price increases, upgrade of returnablecontainer population and significant increase in marketing investment. • Brand portfolio development Develop a balanced portfolio of distinct and differentiated brands at pricepoints that capture perceived consumer value. Specifically, expand theworthmore segment through the introduction of premium brands and packs. • Channel marketing management Increase channel effectiveness through the tailoring of marketing and salesactivities by retail channels segmented and prioritised according to consumerprofile and consumption behaviour. • Pricing management Differentiate pricing by channel, pack and geography, leveraging greaterunderstanding of price and income elasticities. • Operational efficiencies Reduce both variable and fixed costs through improved operational efficienciesand procurement arising from the introduction of SABMiller's best operatingpractices. Strategic Fit In addition to the positive characteristics of the existing Bavaria business andthe opportunity to further improve Bavaria's business performance, theTransaction brings other significant benefits to SABMiller: • Provides additional leading positions in fast-growing markets Over the period 2006 to 2010, it is estimated that 68% of the world volumegrowth of beer consumption will be driven by 12 key countries (includingColombia). SABMiller currently has an 11% share of these countries. Followingthe Transaction, this share will increase to close to 13%. • Establishes SABMiller as the second largest brewer in South America The merger with Bavaria, added to SABMiller's existing Central Americanoperations, provides a strong platform from which to exploit growthopportunities across both the beer and soft drinks markets. • Enhances SABMiller's geographical diversification Bavaria provides a further profit pool to diversify SABMiller's operatingprofile. Following the Transaction, Latin America will account for 21% of theenlarged group's proforma EBITA compared with 34% in South Africa, 16% in theUSA, 13% in Africa and Asia and 16% in Europe. • Enhances SABMiller's earnings per share On a pro forma basis, the Transaction is expected to be earnings per shareaccretive, before cost and revenue synergies for the pro forma financial yearending 31 March 2006. The Board is confident that the IRR of the Transaction is comfortably in excessof its cost of capital and that based upon its assumptions, the Transaction willgenerate positive economic profit by the fifth or sixth full financial year ofownership. Management and Integration The SABMiller regional headquarters will be in Bogota, Colombia. Barry Smith, asenior member of SABMiller's executive team will be appointed to head theregional group. Mr Smith is currently an Executive Vice President at the MillerBrewing Company and was previously Managing Director of SABMiller's business inPoland. Alejandro Santo Domingo and Carlos Alejandro Perez, members of the executivecommittee of Bavaria's Board, will serve as Vice Chairmen on a newly createdboard which will have oversight of SABMiller's operations in Latin America,bringing further experience and local knowledge to SABMiller's management team. Information on SABMiller SABMiller is one of the world's largest brewers with 2004/5 lager sales volumesin its financial year ended 31 March 2005 in excess of 148 million hectolitres,and has a brewing presence in over 40 countries across four continents, aportfolio of strong brands and leading market shares in many of the countries inwhich it has brewing operations. Outside the USA, SABMiller is one of thelargest bottlers of Coca-Cola products in the world. In the year ended 31 March 2005, the group generated $2,194 million pre-taxprofit from a turnover of $14,543 million. SABMiller plc is listed on theLondon and Johannesburg stock exchanges. Agreements Summary of the principal terms of the Merger Agreement SABMiller and BC entered into an agreement and plan of merger (the "MergerAgreement") on 18 July 2005, under which a wholly owned subsidiary of SABMillerwill be merged with a subsidiary of BC and will thereby obtain control over71.8% of Bavaria, in consideration for which SABMiller will issue to BC 225million new ordinary shares in SABMiller, representing an economic interest ofapproximately 15.1% in SABMiller. Completion of the Transaction is conditional on the approval of SABMiller'sshareholders, and on there having been no material adverse change in thebusinesses of SABMiller or of Bavaria between the date of the Merger Agreementand completion. BC has given a range of warranties and indemnities to SABMiller in respect ofBavaria and its subsidiaries and their businesses which are conventional for atransaction of this nature, and SABMiller has given a similar but less extensiverange of warranties concerning SABMiller's business. Bavaria and SABMiller willconduct their businesses in the ordinary course between signing and completion,and SABMiller will be consulted by BC on all major business decisions anddevelopments during this period. SABMiller has agreed that if the Transaction is not approved by SABMillershareholders, SABMiller will pay to BC an amount equal to up to $20 million asreimbursement for fees and expenses of BC and its direct and indirect affiliatesin connection with this Transaction. A fee of $100 million (less any amountspaid pursuant to the reimbursement of expenses) will be paid if the Transactionis not approved by SABMiller's shareholders in circumstances where, before theSABMiller Extraordinary General Meeting, any person has made an offer forSABMiller, or has proposed any other business transaction or combinationinvolving SABMiller which is conditioned upon the Transaction not beingcompleted or if SABMiller's board of directors withdraws or modifies itsrecommendation to SABMiller's shareholders to vote for the Transaction. Following completion of the Transaction, SABMiller will make a cash offer toacquire all the shares held by minority public shareholders of Bavaria inColombia at a price per Bavaria share of $19.48, which is the value per sharethat was used as a reference for the Transaction. Assuming a 100% acceptancefor the Colombian Minority Offer, the total cash requirement is estimated to beapproximately $1.4 billion. SABMiller has entered into agreements with Bavariaminority shareholders holding approximately 3.7% of the shares in Bavaria,pursuant to which they have undertaken to accept the Colombian Minority Offer inrespect of their shareholdings. In addition, SABMiller will acquire theoutstanding minority interest in Leona for $176 million in cash on completion. SABMiller will also make a cash offer to acquire the listed voting A shares inBavaria's subsidiary in B&J, representing a 24% voting interest in B&J, and theminority interests of its listed subsidiaries in Ecuador ("the Peru and EcuadorOffers"). SABMiller has entered into an agreement with a major shareholderowning 24% of the listed voting "A" shares in B&J, pursuant to which it hasundertaken to accept the offer in respect of its shareholdings for $470 millionin cash. SABMiller has estimated that, assuming a 100% acceptance for the Peruand Ecuador Offers, the total cash requirement for these transactions isapproximately $555 million. As of Monday, 18 July 2005, the last practicable date before this announcement,the implied value of 100% of the equity of Bavaria was $4.8 billion. Includingnet debt of approximately $1.9 billion as at 31 December 2004 and minorityinterests of $1.0 billion, the total implied enterprise value for the fulleconomic interest in Bavaria and all of its subsidiaries and associates, isapproximately $7.8 billion. Summary of the principal terms of the Relationship Agreement BC and SABMiller will enter into a relationship agreement (the "RelationshipAgreement") at completion, under which BC: • will have the right to nominate two representatives asnon-executive directors of SABMiller, subject to the level of its economicinterest in SABMiller and the retention of its Consideration Shares; • will agree not to sell any shares in SABMiller for a fiveyear period, subject to certain exceptions, including the right to sellone-fifth of BC's shareholding in any rolling twelve month period for the thirdto the fifth years of the five year period, subject to orderly marketarrangements (which also apply to all other permitted disposals); • will not have its ownership transferred out of the SDG; • will agree to appropriate worldwide non-competerestrictions in the beverage sector; and • will be offered appropriate regional and in-countrynon-executive roles for key members of the SDG. The lock up provisions in the Relationship Agreement may give rise to a deemedconcert party between BC and persons connected with BC on the one hand, andSABMiller, and the board of SABMiller and persons connected with them on theother hand. Accordingly, the Relationship Agreement will provide that ifcircumstances arise where any interest in shares in SABMiller is acquired bySABMiller or persons connected with SABMiller, such that (when taken togetherwith the shares in SABMiller in which SABMiller and persons connected withSABMiller are then interested aggregated with the shares in SABMiller then heldby BC and persons connected with BC) the aggregate voting interest of all thosepersons exceeds 29.99%, the lock up restrictions described above will cease toapply. There is no formal or informal agreement or relationship existingbetween Altria and BC in relation to SABMiller. BC has also undertaken in theRelationship Agreement not to enter into any agreement or undertaking (whetherformal or informal) with any party as a result of which BC, or any person actingin concert with BC, shall become obliged to make any mandatory offer forSABMiller or shall become, or shall be deemed to be, acting in concert. The Relationship Agreement has no fixed term, but ceases to apply if BC nolonger has the right to nominate any representatives as non-executive directorsof SABMiller. Board of Directors If BC exercises its right to nominate two directors for appointment to the boardof SABMiller, the composition of the Board will no longer be in compliance withthe requirements of the Combined Code, because a majority of non-executivedirectors of SABMiller will not be "independent" for the purposes of theCombined Code. SABMiller believes that this departure from the Combined Code isjustified in light of the strategic importance of the Transaction. Regional Board and Management Team SABMiller intends to establish a regional Board to discuss strategic and keyoperating issues relating to SABMiller Latin America, the consolidated resultsof the SABMiller Latin America group and to explore and evaluate consolidationopportunities in the beverage sector. BC will have two representatives as ViceChairmen on this regional Board, which will be chaired by the Chief Executive ofSABMiller. In addition, BC will nominate two directors for appointment to theboard of Bavaria in Colombia, who will be elected as Chairman and Vice Chairman,and there may be representation on the country Boards, where appropriate. TheSDG will therefore continue to play a key role in the development of thebusiness on an ongoing basis. Financial reporting SABMiller will continue to publish financial statements denominated in USdollars and prepared in accordance with IFRS. The financial year-end willcontinue to be 31 March. SABMiller's interim results prepared in accordancewith IFRS for the first six months of 2005, are due to be announced in November2005. Bavaria is expected to publish its 2005 first half results in ColombianGAAP on or around 29 July 2005. Employees SABMiller and Bavaria currently employ approximately 52,000 people in aggregateworldwide. SABMiller believes that its people are its enduring advantage and has welldeveloped strategic people resourcing capabilities and organisational practices. These include performance management processes that ensure clear alignmentwith strategy and encourage employee accountability. SABMiller is committed todeveloping its people and providing opportunities for advancement. The existing employment terms and conditions, including pension rights, ofBavaria's employees, will be appropriately safeguarded. Both SABMiller andBavaria will continue to inform and, where appropriate, consult with relevantemployee organisations regarding the Transaction in accordance with applicablelegal and contractual requirements. SABMiller recognizes that operating in a socially and environmentallyresponsible manner is both an ethical duty and a key to sustained growth andsuperior shareholder returns. The development and welfare of its people and thecommunities in which it operates is therefore central to SABMiller's philosophy. Altria Altria, SABMiller's largest shareholder with 24.99% of the current voting rightsin SABMiller, is fully supportive of the Transaction. As part of the Transaction, a number of modifications and conforming amendmentsare proposed to be made to the existing relationship agreement between SABMillerand Altria which was entered into at the time of the acquisition by SABMiller ofMiller Brewing Company on 9 July 2002. This will be the subject of a separateresolution which will be proposed at the Extraordinary General Meeting toapprove the Transaction, and on which Altria, as a related party of SABMiller,will not vote. Listings, dealing and settlement Following Completion, SABMiller will retain its existing stock market listings,including its listing of Ordinary Shares on the Official List of the UK ListingAuthority and on the JSE Securities Exchange South Africa. Applications will be made for the new ordinary shares in SABMiller to beadmitted to the Official List and to trading on the London Stock Exchange'smarket for listed securities, and to be listed on the JSE Securities ExchangeSouth Africa. This announcement has been issued by SABMiller and is the sole responsibility ofSABMiller. Merrill Lynch is acting for SABMiller in connection with the proposedtransaction and no one else and will not be responsible to anyone other thanSABMiller for providing the protections afforded to clients of Merrill Lynch norfor providing any advice in relation to the transaction. JPMorgan Cazenove is acting for SABMiller in connection with the proposedtransaction and no one else and will not be responsible to anyone other thanSABMiller for providing the protections afforded to clients of JPMorgan Cazenovenor for providing any advice in relation to the transaction. Lehman Brothers, Morgan Stanley and Citigroup are acting for BC in connectionwith the proposed transaction and no one else and will not be responsible toanyone other than BC for providing the protections afforded to clients of LehmanBrothers, Morgan Stanley and Citigroup, or for providing any advice in relationto the transaction. Citigroup, Lehman Brothers and Morgan Stanley are actingfor SDG in connection with the proposed transaction and no one else and will notbe responsible to anyone other than SDG for providing the protections affordedto clients of Citigroup, Lehman Brothers and Morgan Stanley, or for providingany advice in relation to the transaction. This announcement is for information only and does not constitute an offer or aninvitation to acquire or dispose of any securities or investment advice or aninducement to enter into investment activity. This announcement does notconstitute an offer to sell or issue or the solicitation of an offer to buy oracquire SABMiller securities in any jurisdiction. The distribution of this announcement may be restricted by law. Persons intowhose possession this announcement comes are required by SABMiller to informthemselves about and to observe any such restrictions. This announcement includes 'forward-looking statements'. These forward-lookingstatements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. All statements other than statements ofhistorical facts included in this announcement, including, without limitation,those regarding SABMiller's financial position, business strategy, plans andobjectives of management for future operations (including development plans andobjectives relating to SABMiller's products and services) are forward-lookingstatements. Such forward-looking statements involve known and unknown risks,uncertainties and other important factors that could cause the actual results,performance or achievements of SABMiller to be materially different from futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based onnumerous assumptions regarding SABMiller's present and future businessstrategies and the environment in which SABMiller will operate in the future.These forward-looking statements speak only as at the date of this announcement.SABMiller expressly disclaims any obligation or undertaking to disseminate anyupdates or revisions to any forward-looking statements contained herein toreflect any change in SABMiller's expectations with regard thereto or any changein events, conditions or circumstances on which any such statement is based. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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