Will Budweiser become Belgian?
Posted
Jun 16 2008, 01:18 PM
by
Anthony Mirhaydari
Rating:
As you've no doubt heard by now, Anheuser-Busch, the business behind one of America's most iconic brands, is being pursued by foreigners. Late last week, Belgian-based brewer InBev launched an unsolicited all-cash buyout offer worth some $46 billion. Not surprisingly, given a dour U.S. populace, the deal is already generating serious backlash on rumors of job cuts and brewery closings. Jokes that the famous Clydesdales could be sent to a glue factory to help pay down post-merger debt aren't helping either.
Although the deal can't be classified as a matter of national security, as was the case with high-profile acquisition attempts by Dubai Ports World and CNOOC, I have a feeling this one will strike a chord with the average guy on the street. In the words of the Economist, "Could anything symbolize America's loss of economic supremacy more clearly than for its favorite beer to fall into foreign hands?" Politicians are drooling all over themselves at the prospect of railing against yet another foreign economic antagonist in a recessionary election year.
Setting aside populism for a minute, what lies ahead in terms of business strategy? Although Anheuser-Busch has remained deftly quiet on its intentions, taking the weekend to ponder its next steps, it is widely believed that it may make an offer for Mexican brewer Grupo Modelo -- in which it already owns a 50.2% stake. This spurred a not so subtle rebuke from InBev CEO Carlos Brito in which he urged the company to "fully explore our offer and the potential adverse consequences any such transaction could have on the ability of your shareholders to receive our premium offer."
I will have further analysis on what the deal means for Anheuser-Busch, Grupo Modelo, and Inbev later this week. For now, know that InBev is looking for cost savings, not revenue growth, as its main motivating factor. Also know that the offer isn’t likely to stay at $65 per share, but will probably move closer to $70 soon.
If it does, InBev will be paying out a significant portion of the post-merger synergies to Anheuser-Busch shareholders while assuming significant execution risk. This is because Anheuser has already embarked on an ambitious cost-cutting initiative dubbed "Blue Ocean" that will try to save $500 million over four years. Any further cuts will be painfully deep.
So, as is often the case with these types of deals, workers in St. Louis and elsewhere will be faced with job cuts while shareholders (including Warren Buffett's Berkshire Hathaway) will probably walk away with a hefty share of the merger value. It will be interesting to see if free market politics loses out to protectionism on this one. Stay tuned.
Previous posts:
The sinfully bullish case for Anheuser-Busch
(Disclosure: I don't own any shares of the companies mentioned.)
