It´s getting complicated
The next act in the takeover battle of Anheuser-Busch has just begun. While SABMiller let it be known that it has conducted informal talks with Grupo Modelo and InBev as concerns a partial or complete acquisition of the Mexican brewer, sources close to Anheuser-Busch said that the American brewer is planning to reject InBev´s offer.
First it was InBev and Anheuser-Busch. Now Grupo Modelo and SABMiller have entered into the fray. Does anybody know what´s going on?
Until Wednesday 25 June 2008 most people believed that Grupo Modelo could be the stumbling block to InBev´s attempt of taking over Anheuser-Busch for USD 46 billion in cash. The day before, on Tuesday 24 June 2008 it was reported that the world´s largest brewer by volume, SABMiller, had been in secret informal talks with both Grupo Modelo and InBev to discuss whether Grupo Modelo was willing to be bought out by SABMiller and at what price.
As if to diminish the impact of such an unforeseen development, InBev on Wednesday 25 June 2008 sent another letter to Anheuser-Busch, reiterating its offer, saying that InBev had already obtained committed financing and has paid about USD 50 million in fees.
As we reported, purchasing the remaining 49.8 percent of shares in Grupo Modelo that it does not own yet, Anheuser-Busch could finally call the shots at Grupo Modelo and fend off InBev´s unsolicited offer by making itself prohibitively expensive.
This scenario has preoccupied armchair strategists for weeks now – until information was leaked to the press as concerns the contract between Grupo Modelo and Anheuser-Busch. According to the Investment Agreement as of 1993 when Anheuser-Busch first bought into Grupo Modelo, both parties have the right of first refusal. That means: Should SABMiller make Grupo Modelo an offer which Anheuser-Busch can match, then Grupo Modelo will automatically go to Anheuser-Busch. Whether Grupo Modelo likes it or not.
Therefore if SABMiller is really serious about acquiring the Mexicans´ shares in Grupo Modelo, it has to make a really extravagant offer. However, the Mexicans´ share has already been valued as between USD 10 billion and USD 15 billion which equals ten to fifteen times EBIT. In other words, Grupo Modelo will not come cheap.
That is the reason why an offer by SABMiller for Grupo Modelo seems unlikely – unless the South Africans hope that InBev will buy back its stake in Grupo Modelo once the Brazilian-Belgian brewer has successfully taken over Anheuser-Busch.
That´s a scheme with lots of questions marks. Furthermore it implies that history will repeat itself. In 2004 SABMiller and Anheuser-Busch were engaged in a fierce takeover battle for control of the Chinese brewer Harbin. In the end Anheuser-Busch obtained the majority of shares but had to buy out SABMiller at a premium. For SABMiller this was a good deal as it walked away from Harbin having pocketed a risk-free USD 120 million.
The question that no one can answer right now is: How will the Mexican shareholders of Grupo Modelo decide? Do they want to sell or not?
Rationally speaking, the CEO of Grupo Modelo, Carlos Fernandez, 41, has no reason to agree to a sale. He would lose his job. It also seems that he has some shareholders behind him who do not want to sell either.
A handful of Mexican families control 45 percent of Grupo Modelo, a holding company. The original Control Trust in 1993 had eight members, of whom four are still alive. Their heirs, not having a vested or personal interest in Grupo Modelo, were never admitted to the Control Trust. Sources familiar with the situation say that there are some 40 odd shareholders that each own between half and one percent of Grupo Modelo. In effect these people sit on shares worth between USD 50 million and USD 100 million. Would they decline an offer by either Anheuser-Busch or SABMiller? Hardly likely.
And the story continues
However, all the above was idle speculation until yesterday. Today, on Thursday 26 June 2008 U.S. media report that Anheuser-Busch will reject InBev´s offer as too low and plans to woo its shareholders with a restructuring plan that entails the sale of the company´s theme park operations, layoffs, more than USD 500 million in cost-cutting efforts and the sale of Anheuser-Busch´s packaging unit.
That´s what many observers had been expecting. Given its company history, Anheuser-Busch is not the acquisitive type. Put plainly: it is extremely cautious when it comes to buying other companies. Anheuser-Busch´s self-defence plan underlines this. Rather than go for Grupo Modelo Anheuser-Busch hopes to pacify its shareholders with cash.
Following InBev´s offer for Anheuser-Busch launched two weeks ago, market observers have been pondering that InBev, in order to finance the deal, would have to sell off Anheuser-Busch´s non-core assets such as the theme parks and the aluminium packaging unit. That´s exactly what Anheuser-Busch is proposing to do now.
Nevertheless, Anheuser-Busch is only trying to buy itself some time. The interesting thing is what happens next.
And that is: Will InBev take its offer directly to Anheuser-Busch´s shareholders? Will InBev attempt a hostile takeover? Consensus view among the people in the know is: YES! Obviously, InBev has yet to announce such a move.
To win over Anheuser-Busch´s shareholders, InBev may have to raise its offer by more than USD 3 billion, to around USD 70 per share from its current offer of USD 65 per share, though.
Ina Verstl
