Anheuser-Busch InBev has finally convinced the SABMiller PLC’s board to accept £68 billion (above P1 trillion) takeover bid, creating a brewing giant making about a third of the world’s beer. The deal comes after a month long tumultuous negotiations that saw SABMiller chairman holding his ground against an aggressive AB InBev Chief Executive Officer.
SABMiller had initially spurned off four attempts of £38, £40, £42, and £42.15 a share before finally settling for £44(P700) a share. The £44 a share represents a premium of 50 % over the share price before news leaked that AB InBev had made a bid to acquire SABMiller.
The two biggest shareholders – Altria and Colombia’s Santo Domigo family – will settle for cash and share alternatives worth £39.03 a share. Altria which holds a 27% stake in SABMiller had been pushing for the SABMiller board to make way for AB InBev’s advances.
The deal which would still have to pass through shareholders and also subject to passing regulation will see AB InBev pay SABMiller $3 billion should the deal fail to get a nod. But should it get approval, the deal would create the world’s first global brewer generating $70 billion in annual revenues. The deal would also give AB InBev its first taste of African markets, one of the reasons it acquired SABMiller which is the dominant brewer in Africa.
News of the planned acquisition was been well received by the market even before a deal was on the table. By the time AB InBev had reached an agreement to acquire the dual listed SABMiller, the latter’s shares had soared by 30% on the Johannesburg Stock Exchange and about 32% in the London Stock Exchange, sending a strong message that investors are excited about the brewing events.
In Botswana, SABMiller Plc has a stake in Sechaba Brewery Holdings which trades in the domestic exchange market. According to Botswana Stock Exchange, Sechaba Brewery Holdings limited is an investment holding company with interest in Kgalagadi Breweries (Pty) Limited (KBL).
Sechaba holds 60% of the shares of KBL while SABMiller Botswana B.V. holds 40%. SABMiller Plc has management control in the operating company. Their involvement brings management, technical and brand building expertise of the three largest brewing companies in the world to KBL.
Despite this relationship, the share prices of Sechaba stubbornly remained at P28.50 throughout the takeover bid which spanned a month. This development will once more put a sharp focus on the BSE’s position on the Efficient Market Hypothesis (EMH) spectrum as well as the local bourse’s liquidity. On 15th September, the day information leaked that AB InBev was courting SABMiller, its share price soared by 20% in the JSE.
On the other hand, Sechaba’s shareholders held on to their shares in the face of a bid price of P28.25 which was below the current share price of P28.50. On the 13th October, AB InBev reached an agreement with SABMiller and this news was met by gains in SABMiller share price both in the JSE and LSE. This was in contrast to the Sechaba share price that closed at P28.50.
Interestingly, this time there were willing sellers of Sechaba stock offering P28.90 per share against the bid price of P28.50, eventually 195,494 of Sechaba stocks were traded on that day with latest share price closing at P28.51. EMH postulates that share prices instantly and fully reflect all available information, making it hard for investors to consistently make excess profits.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”