There are rumors circulating that value superstar Eddie Lampert might be launching a bid for Anheuser-Busch (BUD) for $56 per share due to an initial report from the Times of London. While I am bullish on the stock (it is a position in my rather focused portfolio), I am highly suspect to rumors that Lampert would do a deal like this.
First off, the company is very, very big and would cost Lampert $44 billion to execute at the rumored $56 per share price. Due to the company’s size, an LBO would be necessary UNLESS Lampert formed some sort of syndicate with private equity firms or hedge funds to buy the company (even less likely than an LBO scenario). An LBO would be hard to perform because the company already has almost $8 billion in debt. In addition, while it is obvious that BUD has struggled to grow in recent years, I believe most investors who have studied the company would agree it’s not the result of poor management. Realistically, it’s an issue of major changes in consumption — namely, the secular switch to spirit/hard alcohol beverages away from beer (BUD’s specialty). As such, it’d be very hard to Lampert to improve profits by merely cutting costs and expecting sales to grow, he would need to continue growing the company via acquisition in the international and spirit spaces.
JP Morgan had this to say:
We do not think there is a fundamental structural issue with Anheuser-Busch where new management could get enough upside from a significant restructuring of the business
Options-tracker Jon Najarian had this to say:
We’ve been in touch with multiple hedge funds and active traders and all are hearing the LBO rumors…If you don’t think the street is chasing this one, you gotta be smoking something!
Another “Wall Street” analyst thinks the news is “completely bullsh*t,” according to a New York Post article.
I’ll be very surprised if Lampert does in fact launch a bid for the entire company and if you’re interested in investing in the company I wouldn’t advise chasing the stock at these levels. My cost basis is more than 10% below the current price and if these rumors are nullified I expect the stock to fall somewhat significantly (as there seems to be plenty of speculators gambling on a takeover due to the jump in both the share price and trading volume yesterday) giving long term investors a much better opportunity to buy.