The King of Beers goes to war: Anheuser rejects InBev
Posted
Jun 27 2008, 10:37 AM
by
Anthony Mirhaydari
Rating:
Since InBev launched its audacious $46 billion offer for Budweiser brewer Anheuser-Busch, investors, analysts, and proud American beer drinkers have all been awaiting word from the executive suite in St. Louis: What's it going to be, yay or nay to the Brazilian-led but Belgian-owned predator?
Yesterday, in a scathing rebuke, CEO August Busch IV didn’t just say no but made an impassioned call to arms. He called the unsolicited offer "financially inadequate" and not in the best interests of shareholders. He touted management's efforts to boost shareholder value through its Blue Ocean cost-reduction program. He stressed the brewer's global footprint. He flaunted Anheuser's renowned brand-building abilities and the power of the Budweiser and Bud Light brands. He even made it personal and told InBev CEO Carlos Brito to take his money and his big dreams elsewhere.
But in the end, it's for the shareholders to decide whether independence and uncertainty is more desirable than surrender and $65 a share in cash. The rejection was largely expected, so InBev has already started making direct overtures to shareholders.
The company announced that it was fully committed to its original offer, had already secured the necessary financing at an expense of $50 million, and restated its "strong preference" for a friendly transaction. But it also filed suit in Delaware, the state of Anheuser's incorporation, to verify that shareholders can indeed vote out the entire board of directors in one fell swoop. In the annals of mergers and acquisitions, this is akin to checking the fuses on your nuclear warheads while extending the hand of diplomacy.
So where do we go from here? According to Tom Pirko at Bevmark LLC, a consultancy, "Hostile takeovers are like watching one animal eat another, in slow motion. Not pretty." InBev can either try to get shareholders to boot out the board, which depends on the ruling out of Delaware, or it can go big with a tender offer and try to buy up a majority of Anheuser's shares. Shareholders will be aligned here, holding out for the best deal possible.
Anheuser, in an alliance with politicians, the unions, and anyone who likes to send their beer money to American bank accounts, will continue its efforts to buy the half of Mexican brewer Grupo Modelo it doesn't already own. In an ironic twist, a similar drama is playing out on this secondary battlefield: Grupo Modelo is controlled by the fiercely independent Fernandez family, and led by 41-year-old scion Carlos Fernandez. By all indications, he isn't going to give up his family's heritage without a fight.
Of course, a friendly deal could still happen if InBev raises its offer. Some think $67 a share would be enough, while others believe Anheuser will hold out for something over $70. Any additional amount will only encourage InBev to cut costs more deeply, as each dollar per share equates to an additional $100 million in required post-transaction synergies according to Morgan Stanley analyst William Pecoriello.
InBev is limited by its own shareholders, who won't like the idea of paying away all the value to the boisterous Americans. This also puts Anheuser's management in a difficult position: Negotiating a higher price will please shareholders, but its 24,000 employees will face a much darker future.
Anheuser's shares are trading higher today on low volume after it announced earnings growth above analysts' expectations. It is looking for earnings per share of $3.13 versus the $3.01 consensus for 2008 and $3.90 versus $3.29 for 2009.
Previous posts:
Budweiser, the great Belgian lager?
Mexican family controls Budweiser's fate
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.)
