InBev Acquires Anheuser Busch for US$70 a Share – The Numbers
Last week, here at Valuecruncher we looked at the then US$65 a share offer from InBev for Anheuser Busch (NYSE:BUD) and came to the conclusion that US$65 a share looked cheap. Our view was that “if InBev wants to get this transaction completed, there are a lot of obstacles-- but price looks like the key one”.
We were wrong. Price was the only obstacle. Twenty-four hours after we wrote that post, InBev increased their offer to US$70 a share and the deal was agreed upon on Sunday night (US-time).
Our analysis put a stand-alone value on the shares of Anheuser Busch at US$67.65. This is the value of Anheuser Busch remaining an independent company – i.e. not being acquired. Our view was that with a stand-alone valuation above the offer price, there was no way that Anheuser Busch would accept the offer. That changed with the InBev bid being lifted to US$70 a share.
The Anheuser Busch valuation as a stand-alone entity [click on the link] and the assumptions behind them [below]:
To people unfamiliar with the mergers and acquisitions processes, these valuation discussions often appear petty: “What is the difference between US$65 a share and US$70?”.
The target company (the one potentially being acquired) needs to determine the value of their business as a stand-alone entity and this should be their bottom line number. This is what we did with our valuation of Anheuser Busch.
The acquiring company will have completed their own merger financial models that show the combined business incorporating financial “synergies” (that usually means costs that can be cut but also that additional revenues can be achieved). The acquiring company will create a valuation for the target company based on these models. That valuation will drive the offer that is made for the target. The objective is to pay as little as possible and retain as many of the synergies for the acquiring company shareholders as can be achieved.
To make an acquisition palatable to the target company shareholders, the acquirer will often pay-away some of these financial synergies in their offer (i.e. give up some of the expected gains of the deal). This process is often called the “takeover premia” (or “premium for control”). The takeover premia is typically specific to the circumstances of each particular deal.