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SABMiller doubles cost savings target as AB InBev circles

Savings should exceed $430m .

SABMiller doubled a pledge to cut costs as it seeks to rally shareholders around its rebuttal of Anheuser-Busch InBev NV, the larger rival seeking to buy the U.K brewer for a record 65.2 billion pounds ($100 billion).

Annual savings in the 12 months through March 2016 should exceed $430 million and reach $1.05 billion by 2020, the brewer said on Friday in a statement. The company had previously targeted about $500 million in annual savings by 2018.

The onus is on SAB to prove it’s worth more after saying AB InBev’s proposal “substantially undervalues” the brewer of Grolsch and Peroni. Under UK regulation rules, AB InBev has until October 14 to make a formal offer for SABMiller. Altria Group, SABMiller’s largest shareholder with a 27% stake, has urged the board to accept the proposal by AB InBev, which came out on Thursday criticising the target company for its refusal to engage, saying its resistance lacks credibility.

Building Defences

“Clearly it makes a lot of sense as part of SABMiller’s bid defense,” said Trevor Stirling, an analyst at Sanford C. Bernstein. “They’re saying they can drive out cost savings as well as AB InBev can to reassure shareholders that there’s no need to sell.”

The new cost savings will come mostly from procurement and also from making manufacturing and distribution more efficient, the company said. SABMiller said the plan assumes that there is no change of ownership.

SAB rose as much as 0.76% to 3 668.50 pence in London. Shares were flat in Johannesburg. AB InBev’s proposal of 4 215 pence a share in cash that most stockholders would receive is 44% above where SABMiller was trading before speculation of a deal.

“Our recent trading statement highlighted our accelerating growth in the second quarter,” said chief executive officer Alan Clark. “Another key plank of our strategy is to build a globally integrated organisation to optimise resource, win in market and reduce costs.”

Clark said SABMiller has a 38% profit margin in its biggest 20 markets, based on earnings before interest, tax, depreciation and amortisation. Still, that’s short of AB InBev’s profitability, the highest among major brewers. The Belgian brewer’s Ebitda margin for its total business was 39.4% last year. Including all of SABMiller’s markets, the brewer’s most recent full-year Ebitda margin was 25.4% on an adjusted basis, or 29.5% unadjusted.

©2015 Bloomberg News

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It’s amazing how much fat there is to cut when your cushy job is on the line.

I think the SAB directors should be made to explain to the shareholders where the cost savings they envisage will suddenly come from and why they had not implemented cost savings before? No wonder SAB dividends have been on the low side and executive remuneration on the high side!

I would enjoy seeing those top nobs on the gravy train slide off their pedestals and fall into the unemployment queue!

End of comments.

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