The Long and Short

A tender offer for Anheuser-Busch Inbev

Meredith Contente | November 3, 2023

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Anheuser-Busch Inbev has announced another tender offer in an effort to reduce net leverage closer to its target range. The latest $3.0 billion tender comes nearly a year after the company executed a $3.5 billion tender. ABIBB believes it can create value through deleveraging, with most of the value captured as they move closer to 3.0x net leverage. The company continues to maintain a long-term net leverage target of 2.0x, but it will take a few years for ABIBB to achieve that. The new tender offer is a positive for overall ABIBB spreads, as the bonds being tendered are at a spread premium, which should help to move the entire ABIBB complex tighter.

The waterfall tender is broken into two different pools across 18 series of notes. The spread premium varies per bond but on average is roughly 15bp better than closing spreads on October 30, 2023. It behooves investors looking to participate in the tender to participate by the early tender deadline, in order to receive the full fixed spread consideration as it includes the $30 Early Tender Premium per $1,000 notional.

Exhibit 1. ABIBB $3.0 billion tender offer

*As of close of October 30,2023
Source: Company Reports; Bloomberg TRACE; Santander US Capital Markets

Tender Details

The $3.0 billion tender was announced concurrent with ABIBB’s fiscal third quarter 2023 release on October 31, 2023. The waterfall tender is broken into two pools with Pool 1 having a Tender Cap of $1.2 billion. The Tender Cap for Pool 2 will be $3.0 billion less the aggregate purchase payable for Pool 1. That said, if the cap of Pool 1 is reached, then the maximum tender for Pool 2 would be $1.8 billion. The fixed spread of the tender includes the $30 Early Tender Premium, with the Early Tender Deadline set for 5pm NYC on November 14, 2023. Any holder that participates after the Early Tender Deadline will receive the fixed spread LESS the $30 Early Tender Premium. Without the Early Tender Premium, the spread premium, which is based off of closing spread levels on October 30, 2023, is essentially lost. The tender offer is set to expire on November 30, 2023.

Long Term Leverage Target Maintained

ABIBB continues to maintain its long-term net leverage target of 2.0x. However, leverage has remained above the target since the close of the SAB Miller acquisition, which was completed in October 2016. Net leverage had climbed above 5.0x post close, but has been on a steady decline since fiscal 2019 as management has prioritized debt reduction. In fact, net debt has declined from $96 billion at year-end 2019 to roughly $74 billion currently. While ABIBB did not provide any balance sheet information with its earnings release, debt levels are likely similar from the fiscal second quarter, which would put net leverage close to the 3.6x area.

Net leverage is expected to decrease with the tender offer as the majority of bonds being tendered trade at a discount to par. The $3.0 billion tender cap represents actual gross spend, and most of the bonds in Pool 2 being tendered trade in the $70-$80 range. The total gross debt reduction will depend on the success of the tender of Pool 1, as those bonds trade much closer to par. The less bonds tendered in Pool 1 will translate to more Pool 2 bonds being tendered, which will increase gross debt reduction. Assuming a $75 average cost of bonds in Pool 2, a $1.8 billion tender spend for that Pool would lead to gross debt reduction of approximately $2.4 billion. Should no bonds in Pool 1 be tendered, $3.0 billion gross spend in Pool 2 would yield roughly $4.0 billion of gross debt reduction.

Returning to Share Buybacks

In addition to the tender offer, management also announced a $1.0 billion share repurchase program to be conducted over the next twelve months. The return to share buybacks may indicate management is returning to a more balanced capital allocation approach, which includes increased shareholder remuneration. While ABIBB has consistently been paying a dividend, management decreased the payout ratio significantly once the pandemic hit. Dividends have been increased on an annual basis since but management has refrained from share buybacks since 2015 when it completed a $1.0 billion repurchase program. The increased shareholder remuneration could limit debt reduction moving forward, thereby taking longer to achieve the aforementioned long-term net leverage target.

Meredith Contente
meredith.contente@santander.us
1 (646) 776-7753

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