Wednesday, June 18, 2008

InBev, in Bid for Bud, Courts Community

It really ought to be called “uncommon sense”. While it may seem that InBev are doing what any company pursuing an unsolicited takeover bid should do by prosecuting a charm offensive with stockholders, the community, and government, you may be surprised how few companies get it right. The sale of the largest US brewer and its iconic Budweiser brand to Brazilian controlled, Brussels based InBev is not sitting well with US lawmakers or many in St. Louis. However, the proposed $65/share offer, that could result in a $57 billion total takeover bid with assumption of debt, should be sitting well with shareholders who have seen little positive share movement in recent years as Bud’s share and historic pricing control over the US market have been eroded by the massive expansion of small micro-breweries, rising imports, and the search by many beer drinkers of the elusive “anti-Bud”.

It would of course be crazy for law makers and community leaders to comment favorably on the proposed transaction. Nobody likes change and a change that sees the country’s leading brewery, and its leading brand, Budweiser, sold to the Brazilians, is not going to be popular. InBev gets this. This is not the first time the company has faced local hostility during its massive expansion and they have learned much over the years. In addition to a charm blitz aimed at wooing the St. Louis media, community opinion leaders, and Missouri’s Congressional delegation, InBev has set up a website to promote the acquisition by providing reassuring facts and grist for the media mill. This is a very smart move and, again, while it will strike most people as common sense, it is not something done with the regularity necessary to make it “common”.
If anyone hadn’t previously noticed the global shift in economic power that is taking place and gaining momentum during the first decade of the 21st Century, this should do it for you. Anheuser-Busch is not a company in trouble. It is not a company without global reach. It is however a tasty target in the on-going consolidation of global brewing that has seen US number two, Miller, become part of South African Breweries to make the world’s current largest brewer, and the nation’s third largest brewer, Coors, merge with Molson of Canada in 2004 to become the world’s fifth largest beer company. Indeed, that consolidation, and the subsequent merger of SABMiller and Molson Coors operations in the US and Puerto Rico just over six months ago, helped make the InBev takeover bid possible by putting further competitive pressure on Anheuser-Busch.
So, when the 'Show-Me State' gets all worked up about Anheuser-Busch being sold to foreigners, they may care to note that there aren’t really any US owned mega-brewers left but Anheuser-Busch. And even if the company somehow survives the InBev takeover bid, its Missouri roots will likely be diluted by the merger of Anheuser-Busch with Grupo Modelo of Mexico (maker of Corona), in which Anheuser –Busch already has a 50% stake. While this strategy is being discussed a means to make a hostile takeover by InBev unpalatable, there is substantial speculation that InBev may like to swallow the Corona maker in the deal anyway. While InBev chief Carlos Brito seems opposed to further upping the deal, it seems unlikely that he would really balk at the opportunity.
The bottom line is that InBev is doing all the right things and making all the right noises. While politicians can volubly declare their opposition to the deal, the fact is that there’s really not much they can do about it as there are no substantial regulatory hurdles to such an acquisition. If Anheuser-Busch shareholders like the offer, that should pretty much be that. The Busch family controls less than 5% of the stock while Warren Buffett’s Berkshire Hathaway Inc., owns over 5% of shares and stands to make some USD $600 million on a three year investment in the company. The largest single shareholder, Barclay's PLC, with over 6% interest in the company, is unlikely to oppose a tidy profit.
“That Buffett is a clever chap. I haven’t been in beer shares for some time. With the economy on the way down, your booze portfolio should be in hard liquor. Beer may be relatively more affordable, but ‘liquor is quicker’ as they say. I can’t see Anheuser-Busch staving this bid off. A Grupo Modelo merger may put InBev off temporarily if they only have Board approval for a purchase in the $50 billion range, but Anheuser-Busch has not grown as aggressively as it should have internationally and this is the price it pays”, said the Bloated Plutocrat. The Bleeding Heart is still so angry with your Genteel Moderator over last week’s Big Oil vs Big Government post that he would not file written remarks. When I did speak with him over the phone, he insisted that “this is all because of NAFTA”. When I explained that the proposed InBev deal had nothing to do with NAFTA, he became very distraught and screamed that I didn’t understand international trade and that this was all just another unwanted side-effect of a free-trade policy. This is of course partly true. But if Anheuser-Busch were buying Tsing-Tao, I somehow doubt the Bleeding Heart would be railing against free trade…

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