Anheuser / InBev: Cooler Heads Prevail

The New York Times and Wall Street Journal are reporting that InBev (INBVF.PK) agreed to raise its bid for Anheuser Busch (BUD) to $70 per share (see InBev Raises its Offer, InBev Boosts Offer). This raises the premium offered for AB from about 30% to nearly 40%. As a consequence, AB has agreed to consider the offer, and has opened lines of communication with InBev.

I applaud the two firms for ratcheting down the hostilities. I also applaud them for recognizing that this is a deal worth discussing (and considering) rather than bickering over. AB’s rebuke of InBev’s initial offer was a blunder. InBev followed that blunder with one of their own, by taking the issue directly to the AB shareholders, drawing the ire of U.S. politicians and consumers in the process.

Personally, I think much of the credit for bringing the two parties together belongs to Adolphus Busch IV (uncle to August Busch IV, the current CEO). When this deal turned hostile, InBev decided to offer its own slate of directors to oust AB’s current board. It so happens that one of those proposed directors was Adolphus Busch IV (I’d actually be interested to know the back-story for why he agreed to serve as a director on the competing slate). As reported by The Economist last week (business brief, sorry no link):

InBev, a Belgian brewer, intensified its efforts to win Anheuser-Busch by nominating an alternative board. The slate included Adolphus Busch IV, who wants the Busch family to negotiate with InBev. He is an uncle of Anheuser’s chief executive.

Provided that talks between InBev and AB do not break down, we can now all turn our attention where it rightfully belongs - to the issue of how InBev will create value by bringing these two firms together. As I have mentioned in previous posts (see Ambush by InBev and Anheuser’s First Ploy), there are lots of reasons to bring these firms together - there are some real distributional and operational synergies. However, as with any deal, achieving synergies can be difficult (see Why M&A Deals Go Bad), …especially for cross-border mega-deals of this sort (see DaimlerChrysler Post Mortem for a case in point).

Then there’s also the issue of whether or not the deal has become too rich - whether the achieved synergies will more than compensate for the premium.

Although the deal is getting friendlier, it has also gotten pricier…

Disclosure: none

Comments

[shadrak:]

At that sort of premium, you are talking about making Buddweiser being a world wide substitute for water. There seem to be a lot of expensive deals around even allowing for the depressed market valuations. Dow was another one. I'd also like to see them squeeze enough money out of that company to make it a five year DCF return. Of course with so much cheap non-bank money around, and if you are looking at ten years to recover your costs before going into profit, which I think these kinds of deals are after, then you're on to a winner.

2008 Jul 13 10:08 AM

[The Geared ...:]

I'm telling you, the BUD and YHOO deals are a black eye for America. YHOO less so than the takeover of our largest brewery by a foreign country. I went on a rant in a post of mine a couple of day s ago, and I still hold that feeling. I also feel that InBev might be making the move at the wrong time if this move does go through. If the price of commodities to produce beer continues to increase, and InBev has to eat $70 per share, the first few quarter results could be a catastrophe. I think shareholders will understand in the beginning, but the long term for all stocks centrally based around commodities will have to lower their earnings forecasts to stay in the black.

2008 Jul 13 10:13 AM

[greenfuture:]

I do not fear foreign investment in the U.S., including purchase of "American" companies or assets. BUD is a multi-national player that was too comfortable with itself. M&A is part of capitalism. If it doesn't work, it'll morph into something else. Chrysler was pathetic to begin with and Daimler couldn't save it. Remember when the Japanese were flush with cash and bought Pebble Beach GC and Rockefeller Center? Then *they* needed the cash and so sold those assets back to others (now American).

InBev can't be foolish enough to mess with the American icon that is the Budweiser brand and its marketing. They will streamline costs and bring BUD to more corners of the world. This merger or change in ownership is simply part of the creative destruction that is capitalism.

2008 Jul 13 10:59 AM

[J. Steiner:]

I think if it is very true that A-B SOLD OUT TO US AMERICANS & TO THE ST. LOUIS PEOPLE FOR MONEY & THE BOARD TOO. THEY ARE NOT AMERICANS & THEY ARE GREETY PEOPLE. I FOR ONE WILL NOLONGER DRINK A-B BEER ANYMORE.

2008 Jul 13 11:16 AM

[CaptBob:]

Their timing couldn't be better best business in a recession/depression is alcoholic beverages.

Sticking a flag pin on a beer is an exercise in futility, suds gourmets drink Heineken now anyway. Bud sells to Troops in A-FaG, and Iraq now since we underpay them by a mile---the true disgrace!

So let's all tilt a Stella Artois to China coming to buy Wal-Mart then we'll get some of our poison cat food money back--at least. They don't know it but the Wal-Marts you can't walk to are in big trouble!

2008 Jul 13 11:48 AM

[shadrak:]

Concerning my first comment above. Certainly with stagnant AB income and profitability, the present price is good for AB. I have also had a closer look at Inbev report and it's dynamism, and compared it to AB and it's flat growth. I would say that on a 10 minute stroll through Inbev 2007 Report, and with a very brief view of their cash-flow, from the point of view of Inbev it would also seem a good deal financially even at the price now being talked about., and thus not too expensive. With only 24% of Anheuser sales being made internationally, you can see why Inbev want it. Bud does have a distinctive and definitely market grabbing taste to it in my tasting experience, especially served ice cold, and so has a "unique selling proposition" in it's taste alone, how the US Branding is played on is the work of Inbev, who say they are in the business of building brands.. The question is now in my mind, is it better to keep Bud a localised beer, but US owned, or a world wide, world renowned beer of the US, but internationally owned. That's an emotional question which at the moment I do not have a strong north on though understandably plenty of others do. True, you loose US control, but you gain much wider fame for US taste. Difficult question.

2008 Jul 13 01:27 PM

[User 225672:]

After Anheuser-Busch ask it's employees to support the not sale.
The board and August III & IV sold us out. The management at
the present in the Breweries are so unqualified to run the plants.
The downfall was going in reverse as fast as it can go. After
working in one of the Breweries for over 20 years. The present
management in place in just plan STUPID. Too many manorities
promoted to possitions to possitions they are not qualified to do.
Case and point the SR. OPERATIONS MANAGER @ JACKSONVILLE
,FLORIDA. SHE CAN'T EVEN SPELL ANHEUSER-BUSCH LET ALONE
PRONOUNCE IT. This is what UNQUALITIED affirmative does for
AMERICAN COMPANY'S. If every race played by the same rules
the hate and discontent for being managed by stupid people
would end.

2008 Jul 13 02:09 PM

[KPO'M:]

I'm not sure going to shareholders was a blunder on InBev's part. I think it convinced A-B management that a sale was inavoidable. A lot of shareholders seemed to be interested in making a deal, Warren Buffett being one of them (a big one at that).

2008 Jul 13 08:53 PM

[KPO'M:]

Of course, I mean "unavoidable" not "inavoidable." Anyway, perhaps all the initial hostility was just over $5/share.

2008 Jul 13 08:54 PM