Update: InBev/Anheuser-Busch Deal Gives the Media a Buzz

According to the Analysts...
Deutsche Bank analyst Marc Greenberg downgraded the Anheuser-Busch stock to "hold" from "buy," saying that the brewer may have to make damaging cost cuts if it is bought by InBev. There was a tip based on reports that this buyout offer will happen, followed by the shares reaching an all-time high of $58 the same week. Greenberg estimates that InBev's offer translates to $65 per A-B share. For that price to make sense, it would have to cut about $1.4 billion in costs. This could hurt its brands, distribution and overall performance, according to Greenberg as reported by the Associated Press.

A-B itself can still reverse course and restore its poison pill anytime the board decides it needs to, says Nell Minow, editor of the Corporate Library, a corporate-governance research firm, as told to Bloomberg.com. A-B wouldn't need the approval of shareholders for 12 months after that. Minow continues, "It seems to me that they're adequately protected. They're not in a bad situation to bargain. They're not going to be pressured into anything.''

In the same Bloomberg.com article, Wim Hoste, an analyst at KBC Securities, says InBev and A-B "would represent an excellent geographic fit. The black hole for InBev is the United States.''

Combining InBev and A-B might lead to a 15 percent cut in the U.S. company's $3 billion spent on annual marketing, distribution and administrative costs, says Carlos Laboy, an analyst at Credit Suisse.

What Do China and Mexico Have in Common?
Mexico and China have a common denominator of being greatly impacted by this possible deal. In the article, ''InBev bid for Anheuser-Busch will be felt in Mexico,'' written by Chris Aspin of Reuters, the bid will shake up Mexico for certain because A-B owns 50 percent of Modelo (well-known for its Corona brand) and Femsa (mostly known for its Dos Equis brand). These brands make up an astonishing 98 percent of the Mexican beer market.

This acquisition will have two likely outcomes, according to Aspin and various analysts:
1. Modelo will embrace the InBev deal and offer the combined company seats on its board, or
2. It would reject the deal and try to buy back A-B's stake.

Modelo is debt free right now and has at least $1 billion in cash for the second option. Francisco Guzman, a beverage industry analyst with Scotiabank, says that the buyback was 'totally possible' and could make Modelo's capital structure more efficient.

A third possible outcome would be that A-B would buyout the other 50 percent of Modelo to protect itself from any InBev bid by making the asking price too high. Carlos Laboy, an analyst at Credit Suisse, told Bloomberg.com that such a step could "stretch the acquisition cost for InBev by another $10 billion to $15 billion massively, or maybe protectively, raise the cost of a hostile bid."

The latest financial report of InBev indicates that the group recorded total sales of EUR 13.308 billion in 2006, with its sales in China rising 7.7 percent. The group has 33 beer brew houses in eight provinces of China, with total output of more than four million tons each year. It has become the third largest beer brewer in China after Qingdao and China Resources. By taking over Anheuser-Busch, InBev will control completely the 100-year-old Harbin Beer and 27 percent stakes in Qingdao Beer. Some experts told Beverage World that the merger of the two giants will present a titan with total assets of $100 billion, controlling one fourth of the world beer market.

A Family Affair
According to a report from Reuters, a member of the founding family of A-B said that any talks with InBev should be based on shareholder value rather than the Busch family's legacy. Adolphus Busch, an uncle of A-B CEO August Busch IV, who controls less than one percent of Anheuser shares, had some comments.

"A possible merger is not a family issue," Busch wrote in a release. It's not a "matter of family solidarity or legacy. It is strictly a matter of shareholder value. It is no secret that the sluggish performance of the stock is a concern."

He also told Reuters that some family members were open to the idea of the two brewers negotiating. Others close to the family were said to make it known that other members are opposed to the offer - all of which own a small part of the stake.

Another key player that is mentioned over and over again is Warren Buffett, who will play a major role in whether or not this deal will pan out. He is the second largest shareholder of A-B with a stake of below 5 percent. Buffett "has a notable reputation for assisting in matters where family ownership is at stake," Busch was quoted as saying. "Should Mr. Buffett see this merger as a positive action for all shareholders involved, the likelihood of a deal will increase enormously."

What did Buffett and Anheuser-Busch have to say about it? 'No comment.'

Confused Customers
St. Louis residents have grown accustomed to seeing local corporations taken over by larger outside firms. According to the A-B neighbors as told to the Associated Press, this brewery is a point of attraction and a hometown sense of pride. Tourists from around the country come to see the Clydesdale horse stables, brewing vats and Busch family memorabilia that dates back for generations. 

"St. Louis has gotten to the point where we have the brewery and the Cardinals - that's it," says John Schute, a local bar owner. "They support us and we support them," adds Schute, who only carries A-B products on tap, with the exception of Guinness stout.

According to a blog for readers at CNBC.com, Americans feel very strongly about this rumored takeover. Below is some anonymous commentary from bloggers:

"If InBev takes over Anheuser, it will be initiating a slow death to the Anheuser brands. No American in good faith will continue to purchase A-B brands once the company has been uprooted and slashed by InBev. A few people will make a quick buck at the cost of a historical brewing family business."

"Toyota took over the U.S. car market because of better quality, so it's about time a beer company gets taken over to improve that quality. Have you ever tasted a Bud Light? Now we need to get a European airline to take over a U.S. carrier and we would have some real improvement."

In a Wall Street Journal blog, Wren Fowler, who with her husband David Fowler started SaveBudweiser.com, a Web site to galvanize support for Anheuser-Busch to stay in America, writes, "It's the last of the American breweries."

 

The Florida couple's petition has already picked up 241 signatures, mostly through word of mouth. Now, they "hope to get a big critical mass out there to get out the word that there are people here who want this company to stay American-owned and not go overseas. We're just concerned that if it goes overseas, they have to do cost-cutting procedures. Anheuser-Busch would be cutting into charitable donations and the good they do." As for the beer itself, Fowler sees it as beside the point. "I like the beer," she says. "But this is about something bigger." This just recently follows the press release of various donations made by A-B to victims of the massive earthquake in China.

Moving On
So what does all of this information prove about the deal? Absolutely nothing. Until InBev or A-B makes a move, we can only keep reading and forming our own predictions, analyses and opinions. But one thing is for sure - the publicity derived from all of this speculation, positive and negative, can't be all that bad for either name right now.