Will Brexit turmoil put MegaBrew into jeopardy?

Following the victory of the Brexiteers on 23 June 2016, investors were given their first taste of the turbulence they can expect in the weeks and months to come. On Friday, 24 June 2016, the FTSE 100 index plunged as much as 549.36 points before staging a partial recovery to close down 199.41 points at 6,138.69.

One of the biggest loosers on paper is AB-InBev. As The Sunday Times on 26 June 2016 had the story, AB-InBev, at the end of last year, hedged GBP 45 billion to protect the cash, which it needs to buy SABMiller, against a potential fall in the value of the dollar. While AB-InBev assumed that the dollar might be weakening, it was the pound that fell. In 2015 one pound sterling was worth more than USD 1.50. Now it is worth USD 1.37. AB-InBev’s accounting loss, says The Sunday Times, could run into billions.

Swings in the pound’s value already have been a headache for AB-InBev, but sterling’s plunge to a more-than-30-year low against the dollar on Friday may cause AB-InBev real pain.

Already, there is some investor chatter (they never stop, do they?) that shareholders of SABMiller might vote “no” to the deal.

In London, SABMiller’s share price was little changed on Friday, closing at GBP 42.75, just 0.3 percent down on its opening level. But the slump in sterling against all currencies means the AB-InBev/SABMiller deal is now much less attractive than it was six months ago.

Since the November offer, sterling has slid 12 percent against the dollar, dragging the offer, in dollar terms, down to USD 95 billion compared with November’s USD 108.6 billion, South African media reported.

The conditions to the deal are likely to be completed this July. At that stage, the SABMiller board will recommend to shareholders whether they should accept the AB-InBev offer.

Before Thursday’s Brexit referendum results, a positive recommendation seemed inevitable. The next four to six weeks in currency and equity markets are likely to be the most volatile in recent history. Therefore, a negative recommendation should not be ruled out totally, South African commentators argued.

Despite the turbulence, there is no sign that AB-InBev might consider topping up its offer.

AB-InBev is not the only brewer reeling from the Brexit upheavals. Big swings in sterling will also be a worry for some international brewers with a presence in the UK. A fall in the currency will hit their profits earned in Britain. This includes Carlsberg, Heineken and Molson Coors, the number two brewer in the UK behind Heineken and the owner of Carling beer. Last year, Molson Coors derived 19 percent of its pre-tax profits from its European division, which is mainly the UK.