Bud Can't Block InBev with Modelo

This is weird: The WSJ is running a story headlined "Without Modelo Aid, Bud Isn't Likely to Parry InBev". The number of times that Grupo Modelo or any of its properties are mentioned in the story? Zero. Elsewhere, the WSJ is reporting that Anheuser-Busch is talking to Modelo. That's right and proper: if they can somehow, miraculously, find more shareholder value in buying the Mexican company than in being taken over by InBev, that's the way they should go, so the option is worth exploring.

But what puzzles me, and the thing which got me interested in the first headline, is the idea that a Bud-Modelo combination would be too expensive for InBev to buy. I've seen this sort of thing a lot:

Anheuser, which dominates the American beer market with its Budweiser, Bud Light and Michelob brands, already owns a roughly 50% stake in Modelo, best known in the U.S. for its Corona Extra brew. Acquiring the rest of the Mexican brewer could make the combined company too expensive for InBev.

Really? InBev (INBVF.PK) is offering $46.4 billion for Anheuser-Busch (BUD). Adding 50% of Grupo Modelo would make the combined company worth, what, slightly over $50 billion? I don't know, I haven't seen anything in the way of estimates of how much a controlling stake in Modelo might be worth. But given that InBev is the leading brewer in Latin America and the most efficient brewer in the world, I'm sure it could make a strong case that it could squeeze extra value out of Modelo - a company the WSJ describes as "viewed by analysts as a poorly run company in need of a turnaround".

So I'm far from convinced that Modelo is a remotely effective poison pill - even if Modelo's CEO, Carlos Fernandez, feels comfortable being treated that way. Besides, Bud-Modelo relations are hardly optimal:

Both companies also would have to put aside what people close to both of them describe as years of hostility and resentments that have built up during their partnership, which dates to the early 1990s.

Put it all together, and you end up with very little chance, I think, that a deal with Modelo is going to be able to derail a takeover by InBev. It probably won't happen anyway, but even if it did, it wouldn't send InBev packing. Or am I missing something here?

Comments

[ronbudman:]

First, there is not doubt that on a dollar basis comparision any shareholder selling on this deal will make a profit. But that is not the full story and really, if the only thing that makes sense any more to stockholders is a current fast buck, then not only is AB doomed but every company that becomes a focus of a buyout anywhere any time. AB is now in the hands of one of the brightest most talented CEO's in Amercia. August Busch 4, and he has only had a little over 2 years to start putting his team in place and get the company moving into a world class economy. Value and profits are nothing but bright up ahead. Already, the company has introduced the widest array of new products than at any time in its history. Imagine for a momnet that this huge behemoth of American Brewing is inching into the world markets. If given time, stockholders will be kicking themselves for getting out now when the stock moves agreesively in that emerging arena. There is still more. Doesn't Americana amount to anything any more.WHAT A GREAT STORY THIS COMPANY HAS! A German immigrant comes to the US and he and his kids end up building one of the biggest companies on the planet and the largest Brewer in the US. I think it is more than worthy of preserving that legacy in tact. Still more, the Busch family nearly single handly rescused the draft horse bred through the use of the Clydesdales as the most recognized symbol of any company in America. They also own one of the largest reserves of animals on the planet through Busch GArdens and Sea World. They recycle more Aluminum cans than any company in the US. They sent over 1 million bottles of water to the victims of Katrina. They have the best super bowl commercials and have responded to every request for assistance in Amercian tradegies. If Americans don't step up and say it isn't always about squeezing every last dollar out then this country will own nothing. There is a solution. Have Americans buy up a truly American Icon. Easy! If everybody goes out and buys at least 3 shares we will drive up the price drive up the value and demand that institutional holders sell to us, Americans. NOT ALL THAT HARD. We would then be true owners of a truly Amercian success story. InBev this brew is not for you!

2008 Jun 13 12:07 PM

[User 209864:]

Shouldn't the linked symbol for this article be ABV? Not that I understand why AmBev is still trading on the NYSE when it's owned by InBev.

2008 Jun 13 01:02 PM

[Tom Jacobs:]

No, he has the correct symbol, it trades in the pink sheets:

finance.yahoo.com/q?s=...

As to the genius of August Busch, I think that anyone who is able to "inherit" the title from daddy is questionable and if keeping it independent were really important the family would not have sold their stake down to 4%. Instead we have the typical moral hazzard of being hostage to controlling individuals with no real stake. Why would they want to do what is best for the shareholders as opposed to themselves. As a long time shareholder I keep seeing all these unlimited possibilities for the firm and yet the stock doesn't seem to go anywhere year after year. I am always impressed by how well dressed August Busch is in the annual report, though.

2008 Jun 14 09:15 AM

[truthinvesting:]

if busch and his family were "serious" they would have kept the stock from their options instead of liquidate them. This merger is an example of capitalism "working"

2008 Jun 14 10:36 AM

[bill d:]

They were doomed when Dale Jr left.

2008 Jun 14 12:01 PM

[r53:]

I think the writer has some research to do, the addition of Modelo would have to drive Inbev's initial offer up by 10-15bn, that is the estimated cost of buying the remaining 50% of Modelo. Any further offers from Inbev would have to be very close to 60bn, or almost a 30% increase.

2008 Jun 15 11:41 AM