Mexican family controls Budweiser's fate
Posted
Jun 23 2008, 09:59 AM
by
Anthony Mirhaydari
Rating:
InBev's $46 billion cash offer for Anheuser-Busch is turning into a global economic nightmare for those proud of their Great American Lager. It's bad enough that a Belgian brewer run by a bunch of Brazilians is trying to buyout the last of the great U.S. beer makers -- this after Miller was made South African in 2002 and Coors became part-Canadian in 2004.
But now, fate has it that the best hope for keeping Anheuser free from the clutches of foreigners rests with the Fernandez family, controllers of Grupo Modelo, the Mexican brewery famous for Corona.
Anheuser wants to acquire Modelo to fend off InBev, given the increased financing and execution difficulties the new, larger company will present. Although Anheuser already owns a 50.2% stake, the miracle of differentiated share classes gives Modelo's controlling family 56.1% of the voting rights. So, if Anheuser is to retain its 156 years of independence, it must somehow persuade the proud owners of Modelo to surrender theirs.
On Friday, longtime Anheuser director and Modelo CEO Carlos Fernandez resigned from Anheuser's board to avoid an "appearance of a conflict of interest" -- indicating something's afoot. This could mean one of three things: Modelo wants to sell itself to Anheuser, Modelo is negotiating with Anheuser to buyback the 50.2% it owns, or Modelo is looking to sell itself to a third-party.
The Wall Street Journal elaborates on the complex "right of first refusal" arrangement that is in play here. Basically, neither Anheuser nor Modelo's controlling shareholders can sell their stake to an outsider without first giving the other a chance to purchase first. Reuters is also reporting that InBev is promising Modelo the chance to "decide its own fate" if it is sold along with Anheuser. All together, things could play out in an endless variety of ways from here.
Most likely, given the rapid consolidation underway in the global beer market, Modelo's shareholders won't go independent and face an uncertain future against much larger competitors when they are perfectly positioned to capture a sweet deal from Anheuser. In this situation, Anheuser buys the rest of Modelo for something on the order of $10 to $12 billion.
Morgan Stanley beverages analyst William Pecoriello estimates that folding Modelo into Anheuser would easily boost sales growth from 1.7% to 3.8% as its exposure to developing markets swelled from 3% to 20% over the next three year. Even when excluding any post-merger synergies, he thinks profit growth could move from 2% to 6.3%. More importantly, full control of Modelo would strengthen Anheuser's argument to shareholders considering InBev's $65 per share offer. Assuming InBev is forced to raise its bid to $70 because of this, William sees the total acquisition cost jumping nearly $20 billion.
Will this be enough to scare off the marauders? Consider that each additional dollar added to the price per share requires another $100 million in post-merger synergies for InBev. This comes atop the $500 million four-year cost cutting program underway at Anheuser and the incremental $600 million InBev thinks it can save. If things get to this point, and InBev is desperate to make the acquisition work, don’t be surprised if outside "security forces" are brought into the breweries to "ensure workers' safety" as they did with pushups, name calling, and union intimidation in Canada and Brazil according to the St. Louis Post-Dispatch.
Anheuser is doing what it can in the meantime, as demonstrated by a small acquisition in India announced on Friday. Ultimately though, for Anheuser-Busch, its shareholders, thousands in its employ, and a legion of loyal drinkers, the future will now be determined by a handful of souls in Mexico City.
Previous posts:
Budweiser, the great Belgian lager?
It's over, folks: Buffett backs Budweiser sale
Will Budweiser become Belgian?
The sinfully bullish case for Anheuser-Busch
(Disclosure: I don't own any shares of the companies mentioned.)
