Good-bye, then, Anheuser-Busch

Upon close of the transaction, all shares of Anheuser-Busch will be purchased for USD 70 per share in cash, and Anheuser-Busch will become a wholly owned subsidiary of InBev.

Closing of the transaction remains subject to regulatory approvals. A closing date has not yet been announced, but both InBev and Anheuser-Busch continue to expect that they will complete the transaction by the end of the year.

Once the deal closes – which is the most expensive in the history of the brewing industry – it will create the world´s largest brewer. The new entity, clumsily called Anheuser-Busch InBev, will dethrone SABMiller, the current “King of Beer”.

The board of Anheuser-Busch had already announced in July that it was accepting a buyout from InBev worth USD 52 billion, or USD 70 a share.

Recently, InBev reiterated that it will not reduce or change its share offer, even though Anheuser-Busch´s share price has dropped amid larger market turmoil.

Anheuser-Busch´s shareholders will make a significant amount of money. By October, Anheuser-Busch´s share price had dropped below USD 60. However, on the day before the vote it had risen again to USD 66.

Prior to the vote, Anheuser-Busch announced on Friday 7 November 2008 that it had settled all of the shareholder litigation regarding its pending takeover by InBev. The suit, which had been filed by InBev in June, alleged that the maker of Budweiser and its board members failed to maximise shareholder value by not originally giving enough consideration to the InBev deal.

On Thursday 6 November 2008 Anheuser-Busch´s employees were relieved to hear that their company had struck a deal with the Teamsters union. Many had feared that the union would make its anger felt over the sale of Anheuser-Busch to InBev by refusing to sign a new contract. The more than 5,000 full-time Anheuser-Busch Inc. employees represented by the International Brotherhood of Teamsters approved a new five-year contract which includes a total wage increase of 15 percent over five years, or an average of 3 percent a year.

The contract also renews the Budweiser maker´s contractual commitment to keep all twelve U.S. breweries open for the life of the contract. Perhaps this was the last service Anheuser-Busch´s board could render its employees. The agreement with the union was ratified nearly four months ahead of expiration of the current contract and runs through 28 February 2014. Even if InBev wanted, it cannot back out of this agreement.

In view of the troubles at the world´s financial markets, InBev decided on 14 October 2008 to postpone its planned rights offering. To finance the all cash deal, InBev had hoped to issue new shares. However, because of the current crisis a rights offering would not have flushed in the funds InBev could have expected at better times.

Which must have made InBev take a closer look at its portfolio. Analysts say that we are going though a period where every asset in the InBev portfolio will be rumoured to be for sale. True, InBev needs money and getting rid of components of the portfolio that are not growing and are not strategic for future growth represents an opportunity to raise cash.

The latest rumour concerns InBev´s German portfolio. Since 2001 InBev has been buying up a slate of German breweries and brands, the most popular of which is Beck´s. Over the years InBev has spent about EUR 3 billion on becoming Germany´s number one brewer -- without ever achieving the sort of profit margins InBev considers its due.

It was an open secret that InBev´s discontent with its German subsidiary (14.2 million hl beer in 2007) has grown each year. Likewise displeasure among German executives has reached levels that Beck´s human resources department must have been working overtime non-stop to cope with the frequent changes in staff.

This unpleasant situation could be resolved if InBev agrees to sell most or all of its German assets to the privately-owned German food group Dr Oetker, which also happens to be the country´s number two brewer.

Both parties have not denied the rumour.

German media claim that Dr Oetker (Radeberger, Jever) is prepared to fork out EUR 1 million for Beck´s, Hasseröder, Diebels, Spaten and Franziskaner. If this were true and InBev actually agrees to this offer, InBev would be selling at a great loss.

However, Dr Oetker´s position in the discussions is far from solid. Its top man has manoeuvred himself into a corner by announcing prematurely that he hoped to increase his company´s share of the beer market to over 20 percent from its current 15 percent with the help of acquisitions. The man who announced this target is Ulrich Kallmeyer, the head of Dr Oetker´s beer division. Mr Kallmeyer is also in a bit of a hurry as he is to retire at the end of this year. Most likely he wants to crown his career with a strategic purchase of this size.

Had he been a politician, his advisors would have probably run away screaming. The first rule in politics reads: “You do not mention exact figures – never – in case you do not achieve them”. His was a mistake only greenhorns make.

In any case, rumour has it that the discussions between InBev and Dr Oetker are at an advanced stage.