SABMiller – deal going flat?

Developments in the drinks sector have signaled all may not be well with the SABMiller/ABInBev merger.

London Stock Exchange
Source: Bloomberg

SABMiller shares are under pressure this morning, thanks to concerns the possible deal with ABInBev may not go through. Media reports indicate the chairman and board are moving towards fighting the bid, while tobacco firm Altria is also reported to be unhappy, given its 27% stake in SABMiller has provided a hefty slice of income over the years.

Today’s trading update was brought out earlier than expected as a result of the bid. Q2 revenues were up 6%, compared to a 3% rise in Q1, excluding the effect of currencies. Once this is factored in, revenue was down 9%, due to continuing woes for key emerging market currencies which are facing up to a stronger dollar. The LatAM and South African businesses continue to perform well however.

SABMiller shares have been boosted twice in the past month, as news of the bid came through, but today’s update and hints the deal might fall (as has happened to two other big deals in the past month) has put the shares on the back foot. A close back below £37 would be the first start in any retreat, with a possible move back towards £35 and then the 200-day simple moving average at £34.55. For short-term traders, a drop through the 8-day EMA at £36.89 would be a signal of temporary weakness.

Any short position comes with a health warning – any hint the deal is back on track, or that it will go ahead regardless of SABMiller’s objections could put a big upward move in play, so careful position sizing and stops are essential. A move back through £37.64 and then £38 would suggest the buyers are back in control. 

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