InBev makes USD 65 per share offer for Anheuser-Busch

On 11 June 2008 InBev made an unsolicited USD 46 billon offer for the American King of Beers. The response from St. Louis? Anheuser-Busch’s board promised they would look at it.

After weeks and weeks of rumour mongering, InBev yesterday came out with an offer to acquire all outstanding common shares of Anheuser-Busch for USD 65 per share in cash.

Being paid in cash could prove attractive to shareholders, who receive an immediate premium of 35 percent over Anheuser-Busch’s 30-day average share price prior to recent market speculation, and an 18 percent premium over Anheuser-Busch’s previous all-time high of USD 54.97 as of October 2002.

Circulating rumours rather than fact was a shrewd move by InBev to force Anheuser-Busch back to the negotiating table. It was leaked recently that the two companies have been in secret talks for 18 months over a deal but to little success, it seems. To InBev’s chagrin, Anheuser-Busch does not want to be bought out.

Whatever InBev’s initial time frame was for the deal, it had to make its offer public now before the U.S. presidential campaign gets any more agitated. Otherwise the Brazilian-run InBev could find itself at the receiving end of a patriotic outcry. To most people between New York and Los Angeles, Budweiser is as American as apply pie.

The Anheuser-Busch deal lacks in obvious synergies. It is highly revealing that InBev does not make an explicit mention of synergies in the offer, which indicates that it is after size – getting back to the top slot in the brewers’ global ranking - and marketing expertise. On both accounts Anheuser-Busch scores highly. Whether these two reasons alone warrant the expense of USD 46 billion – that’s for the financial markets to decide.

Speaking of geography, Anheuser Busch is the perfect vehicle for InBev to extend its presence in the USD 90 billion-U.S. beer market where the two companies already have a distribution agreement. Lacking major overlaps, InBev should not have any problems getting the deal waved through by the U.S. antitrust authorities.

In addition, the deal would allow InBev to combine its Chinese operations with those of Anheuser-Busch, thus competing more effectively with SABMiller’s joint venture in China, CRE Snow.

InBev’s lawyers have been most courteous and careful in the wording of the offer to avoid giving away any indication that InBev is prepared to go hostile should the need arise.

The offer is called a “proposal”. InBev wants to “engage in a dialogue” with Anheuser-Busch leading to “consummating a friendly combination” – which all makes it sound as if Anheuser-Busch’s board has any options of turning down the offer.

Further, InBev “envisions making St. Louis the headquarters for the North American region and the global home of the flagship Budweiser brand.” To flatter the Americans, InBev has even proposed to re-name the combined company in order to evoke Anheuser-Busch’s heritage.

Hoping to avoid a brain drain, InBev said it would invite a number of Anheuser-Busch’s directors to join the board of the combined company and would seek to retain key members of Anheuser-Busch’s management team across the organisation.

Last but not least, InBev promised it would keep all of Anheuser-Busch’s 12 U.S. breweries running.

The combination of Anheuser-Busch and InBev would create the global leader in the beer industry and one of the world’s top five consumer products companies, says InBev. On a pro-forma basis for 2007, the combined company would generate global beer volumes of 460 million hl, net sales of USD 36.4 billion, and EBITDA of USD 10.7 billion.

Together they would control 25 percent of the world’s beer output. If you were to add the volume brewed by the – then – number two, SABMiller, their combined volume would amount to more than a third of global production. Compare that to last year, when the big five brewers had 43 percent of global market share and you can see that the consolidation of the brewing industry has entered another stage.

InBev admitted that the brewer would burden itself with more than USD 40 billion in debt because of the deal. Observers have already mused how InBev was going to recoup some of its expenses. Obvious assets to sell are Anheuser-Busch’s theme parks and canning companies.

What may have instilled InBev with a sense of urgency and compelled it to come forward with its offer for Anheuser-Busch now is that on Friday, 6 June 2008, SABMiller and the Molson Coors Brewing Company announced that they have been informed by the Antitrust Division of the U.S. Department of Justice (DOJ) that the DOJ has no objections to their joint venture in the U.S.

The MillerCoors joint venture, which is to give the two brewers a combined 30 percent share of the U.S. beer market, will generate USD 500 million in annual cost synergies, it was reported – and possibly create a player in the U.S. beer market who will be up to the task of challenging Anheuser-Busch.

Ina Verstl