Two buys to start the month and the SABMiller mess

This month I once again split my cash to buy shares of two companies. I think I mentioned it a couple of times before, I still have a bunch of free trades with my broker that expire about 8 months from now so I don’t have to worry about transaction fees when making small-sized purchases.

Two new buys this month
I started my monthly purchases by buying five more shares of biotech firm Gilead, this increases my yearly dividend income by $5.83. The day after I loaded up seven more Diageo ADRs, this buy increases my yearly dividend income by £16.10. The alcoholic beverage maker is now the third largest position in my portfolio.

Brexit impact on my SABMiller shares
The value of another alcohol position in my portfolio got hit quite a bit by the Brexit vote. While the weakening pound is sending shares of companies like Diageo and GSK higher, this is not the case for SABMiller due to the pending takeover by AB InBev. Unfortunately for me, the AB InBev bid was in GBP, I think my shares were up about 10 percent before the Brexit vote but now this has declined to a gain of just 3 percent.

On the bright side, AB InBev’s partial share offer is looking increasingly attractive. Last year when AB InBev announced its final takeover bid for SABMiller, the beer giant offered £44 all-cash or a partial share offer that was valued at £39 at the time. The partial share offer was designed as a tax-friendly option for Altria and BevCo, together these two parties hold 41 percent of the SABMiller shares. By opting for the partial share offer, these two parties can avoid paying the capital gains tax that would come with the all-cash offer.

The curious thing is that the value of the partial share offer has appreciated significantly. On one hand, the value of the AB InBev shares has gone up significantly and on the other hand the value of the pound fell significantly after the Brexit vote. As a result, the partial share offer is now worth about £51.50 — a 17 percent premium versus the all-cash offer.

There are some caveats of course, the biggest one being that these shares will not be listed on any exchange for five years, meaning they can’t be sold or transferred until the lock-up period is over. Secondly, the share offer is limited to about 41 percent of the SABMiller shares, if there’s more demand it will be handled on a pro rata basis.

At the moment I’m not entirely sure if my broker will offer the opportunity to opt into the partial share offer as these shares will be unlisted. This is something I will definitely inquiry about as I don’t mind the five-year lock-up period.

Which stocks or assets did you buy this month?



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