That’s it: InBev buys Anheuser-Busch
Although last week InBev and Anheuser-Busch were still in loggerheads over some legal quibbles and it seemed that the hostilities could drag on well into the final weeks of the U.S. presidential campaign, the shareholders of Anheuser-Busch decided that enough was enough and pushed Anheuser-Busch towards accepting a sale. That way they prevented Anheuser-Busch and its brands from suffering any irreparable damage.
At Monday 14 July 2008 InBev announced that it has combined its business with that of Anheuser-Busch thus bringing five weeks of a heated takeover battle to a close.
In order to buy Anheuser-Busch, InBev had to raise its cash offer from the initial USD 65 per share to now USD 70 per share. That will add another USD 6 billion to the total acquisition price, bringing it up to USD 52 billion.
This may seem a lot. However, in a webcast this afternoon InBev’s CEO Carlos Brito said that the purchase price represented an EBITDA multiple of 12.4 – which is average for the brewing industry. Other than you think, InBev is not overpaying for Anheuser-Busch. After all, Anheuser-Busch also brings a very profitable 50 percent stake in the Mexican brewer Grupo Modelo and a 27 percent stake in China’s Tsingtao Brewery to the table.
This confirms that Anheuser-Busch was justified in turning down the early InBev offer. Moreover, the board remembered only too well the sale of Scottish & Newcastle last year and the lesson in business etiquette we learnt from it. It’s “never accept the first offer”. Heineken and Carlsberg were forced to top up their opening offer after the board of Scottish & Newcastle had said that it grossly undervalued the brewer.
Apparently, the board of Anheuser-Busch heeded that advice. When it rejected InBev’s advances on 26 June 2008, everybody knew that InBev would have to lure Anheuser-Busch’s shareholders with an extra bonus to sway their opinion towards supporting a sale. For several weeks InBev’s CEO Mr Brito had not tired to call his offer for Anheuser-Busch “good and fair“. Yet, when the analysts, whose job it is to crunch the numbers, had worked out that InBev could afford paying USD 70 per share, everybody knew Anheuser-Busch’s resistance would wane once InBev put such a proposal on the table.
As we reported, the immediate Busch family that has run the company for five generations does not own the majority of shares in Anheuser-Busch. The current CEO, August Busch IV, and his father control less than 2 percent of Anheuser-Busch’s shares. That’s why they had to resort to psychological warfare to postpone the inevitable and make themselves as expensive as possible. They knew as well as everybody else that they could not block a deal if the shareholders wanted it.
Unluckily for Anheuser-Busch, InBev proved well prepared for guerrilla warfare too. After the Anheuser-Busch board had turned down its original offer, InBev took them to court in Delaware where Anheuser-Busch is incorporated, hoping that the court would allow InBev to sack Anheuser-Busch’s board. True, it’s a crude move but who cares about manners when attempting a hostile takeover? As if this was not enough, InBev a few days later distributed a list of potential Anheuser-Busch board members, most of them corporate has-beens, but, one could assume, more favourably inclined towards a sale – if the price was right.
Anheuser-Busch retaliated last week by suing InBev in turn, blasting the Belgian brewer’s USD 46 billion takeover attempt as illegal and misleading to shareholders. In its suit, the St. Louis-based brewer called InBev’s attempted buyout an "illegal plan and scheme" to acquire the company at a bargain price through "deceptive conduct." Anheuser-Busch sought an injunction to stop InBev from moving forward with its plan to oust its board and replace directors with an InBev-friendly slate until the Belgian company provided more accurate information.
In retrospect, it has to be said, though, that InBev has always kept the upper hand throughout. What has struck observers is how quickly InBev got Anheuser-Busch cornered, although Anheuser-Busch’s board should have known what was going to hit them after InBev had approached them 18 months ago to discuss a takeover.
Anheuser-Busch’s response to InBev’s unsolicited offer was to play the patriotic card and rally popular support against a foreign buyer. The campaign had its desired effect. American mass media immediately united against InBev. As the U.S. are in the middle of a presidential campaign, the Democratic presidential candidate Barak Obama could not refrain from commenting on the goings-on in St. Louis. Last week he said: "I do think it would be a shame if Bud is foreign-owned".
To Anheuser-Busch’s shareholders this must have been it. In our time and age, any patriotic campaign is going to miss its target. Who owns Anheuser-Busch anyway? Not the Busch family, that’s for sure. I’d venture the guess that Anheuser-Busch is internationally owned already. For example, Anheuser-Busch’s major shareholder, controlling 6.1 percent of the shares, is a Barclays Bank investment fund. Now does this fund call itself an English fund? No. American? No. Come to think of it, why should it?
Anheuser-Busch’s patriotic smear campaign, rather than hitting InBev, would eventually turn against the brewer itself. The shareholders knew that if Anheuser-Busch was sold and the campaign had taken hold of public opinion, sales of Budweiser and Bud would suffer. No one could have wanted this to happen. Least of all Anheuser-Busch’s shareholders. A few phone calls to Mr Busch and his team probably made sure that he got the message and relented.
Today Anheuser-Busch and InBev said that they have agreed to call the combined company “Anheuser-Busch InBev”. That name is not easy on the tongue and chances are high that part of the name will be dropped eventually. Guess which one it will be? InBev’s, you bet.
Mr Brito will be CEO of the world’s largest brewer. August Busch IV and another Anheuser-Busch director will join the new board as new directors.
On a pro-forma basis for 2007, the combined company would have generated global beer volumes of 460 million hl, revenues of USD 36.4 billion (EUR 26.6 billion) and EBITDA of USD 10.7 billion (EUR 7.8 billion).
InBev underlined again that none of the 12 breweries Anheuser-Busch has in the U.S. would be closed. Instead, the transaction is to yield cost synergies of at least USD 1.5 billion annually. How Mr Brito plans on doing this without axing jobs, remains unclear.
As part of its defence strategy, Anheuser-Busch two weeks ago announced significant cost cutting measures to the order of USD 1.0 billion by the end of 2010 which included a reduction of its 30,000 odd workforce by 10 percent to 15 percent. Rest assured that this plan will be implemented once Mr Brito and his men can lay their hands on a copy of it. Also rest assured that the new number five global consumers goods company (that’s what Anheuser-Busch InBev is now calling itself) will increase its pressure on its suppliers in well-known InBev fashion.
Finally, it was reported that Budweiser would become one of Anheuser-Busch InBev’s global brands. Which begs the question who is going to buy the Czech brewery Budweiser Budvar once it is put on the market by the Czech government? As we reported two weeks ago, Anheuser-Busch InBev will show little interest in paying a strategic price for the state-owned Budweiser Budvar just to end the annoying trademark dispute. At the moment it seems that the Czech government will be unable to sell the family silver – an unexpected development the management of Budweiser Budvar might cheer in secret.
Due to the limited geographic overlap between Anheuser-Busch and InBev, regulatory hurdles should be overcome soon and the deal closed by the end of the year.
InBev says it has received fully committed financing with signed credit facilities from a group of leading financial institutions, including Banco Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland. The transaction will be financed with USD 45 billion in debt, including a USD 7 billion bridge financing for divestitures of non-core assets from both companies. Does this mean that Anheuser-Busch’s theme parks will be sold eventually?
In addition, InBev has received commitments for up to USD 9.8 billion in equity bridge financing. Mr Brito announced that the new company would return to current debt levels in two to three years.
The financial markets will hark his words. And so do we.
