Page 9 - AB INBEV MODEL ANSWER 1

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offers an opportunity for us to approach the capital markets and demonstrate that we can raise such
a massive amount of cash and still deliver on our year-to-year group financial targets. Prior to the
acquisition, we had stated 3 key annual financial objectives: (1) grow Dividends Per Share (DPS) by
10%; (2) deliver Total Shareholder Returns of 14%; and (3) Keep gearing (D/D+E) below 40%. We do

not have 2015 financials –so, we will assess the impact of funding the deal by debt versus equity on
these group financial objectives (Appendix 4 for detailed calculations) based on the latest financial
statements available at the time of the offer –December 2014.

1) Grow Dividends Per Share (DPS) by 10% year-on-year
The effect of the acquisition on DPS growth will depend on whether it is financed by debt or equity. If
financed by debt, interest costs will rise by US$4906 million, that is, 6.10 % (1-18%)*0.93), which,

before taking into account post tax cost and revenues synergies of US$2,660 million per annum, will
reduce earnings attributable to AB InBev’s shareholders. As calculated in Appendix 4.1, before the
acquisition, AB In Bev’s DPS was 2.85, a growth of 23%; and after the acquisition, the combined entity,
NEWCO, under debt finance (Appendix 4.2) is expected to deliver a DPS of US$3.17 –a 11.24%

increase, which is higher than the 10% target, although a major drop from the 23% achieved before
the acquisition!

If the acquisition is financed by equity (Appendix 4.3), there will be an additional 959m shares in issue
(US$105,500 million/110 per share), a mammoth increase of 58%. Trying to sustain a stable dividend
payout with such an increase in shares will be a major challenge; never mind trying to grow dividends
by 10% per annum. Under this method of funding, DPS increases only minimally by 4.3%, to US$2.97,

far below the 10% target required. If Newco wishes to increase DPS by 10%, and still fund this deal
with equity, it will need to pay out total dividends of US$8,226million (2.85*1.1* 2625 million shares);
which means it must revise its pay-out ratio to 80% (8,226/10,269), which is way higher than the 51.4%

it last paid in 2014! It would in any event be paradoxical if it would want to pay such a large dividend
at time it is actively seeking to raise funds for the SABMiller deal!

2: Deliver Total Shareholder Returns (TSR) of 14%

Before the acquisition, AB InBev was exceeding this target, with a TSR (Dividend Yield + Capital Gain)
of 18% (Appendix 4.6). Under the debt finance, TSR just about hits the 14% target whilst it falls far
short, at 3%, under the equity finance option. A major assumption is that the current P/E ratio will
continue into the future, irrespective of the increased financial gearing.

3: Maintain a gearing (D/D+E) of 40%
Per calculations in Appendix 4.2, by Book Value (BV), gearing is currently 47% -and it is only 19% by
Market Value (MV). Under debt finance (Appendix 4.2), it will worsen to 75% by BV and 42% by MV;

under equity finance (Appendix 4.4), this will drop to 21% by BV and 13% by MV, due to the increased

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