InBev-Anheuser-Busch deal could still fall through

In recent weeks, ever since InBev’s shareholders voted on 29 September 2008 in favour of buying Anheuser-Busch, rumours have gone round that InBev may not be able to get its financing lined up to complete its takeover of Anheuser-Busch. Needless to say that InBev has reaffirmed that it is “fully committed” to its increasingly expensive seeming USD 70 a share bid.

With stock markets taking a plunge, many wonder if InBev will be able to close the biggest deal in the history of the beer industry. After all, InBev is relying on USD 45 billion of debt to buy Anheuser-Busch in the middle of the worst credit crunch in decades. Moreover, USD 70 a share is more than USD 10 above Anheuser-Busch’s all-time-high stock price before word of the deal leaked in May this year.

This has led to the speculation that InBev or its financing banks may want to walk away from the deal or renegotiate it, at the very least. Recently, some banks have balked at funding deals negotiated before the financial crisis hit. For example, Credit Suisse and Deutsche Bank refused to lend money for the merger of chemical companies Hunstman Corp. and Hexion Specialty Chemicals Inc., saying the combined company might not be solvent.

The deal has a termination fee of USD 1.25 billion, it was reported. However, InBev could only pay that and get out of the deal for as long as its shareholders rejected the merger. They approved the deal at the end of September.

Now Anheuser-Busch could sue InBev for significantly more than USD 1.25 billion if it walks away now, according to people following the deal. The gentlemen from St. Louis could ask for something like USD 19 billion in compensation. That’s according to analysis of Anheuser-Busch’s proxy statement by Stifel Nicolaus analyst Mark Swartzberg. Mr Swartzberg arrives at this conclusion by taking the USD 70 offer price less Anheuser-Busch’s likely current share price without a deal of USD 45 a share, ignoring fees.

To InBev’s defence it has to be said that since InBev has committed financing, it would likely sue its banks for that amount, and that would probably motivate the banks to get this deal done.

However, this depends on InBev’s credit rating remaining bankable. If InBev’s credit rating gets downgraded to junk, this gives its banking syndicate the legal right to walk away from the deal. Then Anheuser-Busch could file an estimated USD 19 billion claim against InBev, whose market capitalisation is currently floundering around at USD 20 billion.

Other analysts quoted in the financial media have argued that Anheuser-Busch InBev - as the new company will be called - will likely be rated investment grade, which will give banks a fighting chance to sell the loans off to other banks or investors.

On 31 October 2008 Dow Jones reported that the deal would go through, but that InBev may have to change the terms of its financing. InBev may permanently abandon its plan to raise equity financing, given that its stock price has plunged over the past month, and instead sell more assets to fund the acquisition.

That will trigger off even more speculation which companies InBev may put up for sale.