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 Business News | June 2008 
InBev Tells Anheuser-Busch Not to Pursue 'Alternative' Deal
 Duane Stanford & Caroline Salas - Bloomberg
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InBev NV, which is attempting to take over Budweiser maker Anheuser-Busch Cos. for $46.3 billion, told the U.S. brewer not to pursue other transactions that would derail its unsolicited bid.
Anheuser contacted Corona maker Grupo Modelo SAB about a possible merger, the Wall Street Journal said on June 12. Buying Mexico's Modelo, which is 50 percent owned by the U.S. brewer, may undermine InBev's bid by making Anheuser too expensive.
"No alternative transaction that you could effectuate would create more value for your shareholders," Carlos Brito, chief executive officer of the Leuven, Belgium-based brewer, said in a letter to Anheuser-Busch CEO August A. Busch IV.
InBev's bid of $65 a share seeks to create the world's largest brewer by sales volume and unite Budweiser, first made 132 years ago in St. Louis, with Stella Artois, Bass and more than 200 other InBev brands. At Busch's request, Warren Buffett, whose Berkshire Hathaway Inc. is Anheuser's second- biggest shareholder, will discuss the bid with the CEO this week, the Guardian said, citing unidentified sources close to the deal.
"You have this natural conflict that exists between the shareholders' interest and management's interest," Donald Yacktman, president of Yacktman Asset Management Co. in Austin, Texas, said by phone. InBev may be saying "`you'd better be careful or you might get sued,"' Yacktman said.
InBev slid $1.53, or 3.1 percent, to 47.9 euros in Brussels. St. Louis-based Anheuser-Busch rose 3 cents to $61.15 at 9:51 a.m. in New York Stock Exchange composite trading.
Biggest Brewer
Buffett may recommend the Busch family consider discussions with InBev, the Guardian said. August Busch is opposed to a sale and other family members and directors are split, the Wall Street Journal had previously reported, citing unidentified sources. Berkshire spokeswoman Jackie Wilson didn't immediately respond to a request for comment.
Anheuser-Busch Chief Financial Officer W. Randolph Baker said in an e-mailed response to InBev's statement that the brewer doesn't comment on speculation. The company said June 11 that it will make a decision on InBev's offer "in due course."
"We would expect that prior to proceeding with any alternative transaction, especially if your shareholders will not be given the opportunity to vote on it, you would first fully explore our offer," Brito said in his letter to Busch.
Grupo Modelo, based in Mexico City, said in a statement last week that it plans to remain a Mexican-owned company and will make any needed decisions should Anheuser-Busch and InBev decide to merge. CEO Carlos Fernandez is on Anheuser's board.
Shareholders' Profile
The Busch family, which has run the brewer for five generations, doesn't have a big enough stake to block InBev in a shareholder vote. Anheuser executives and directors, both family members and outsiders, control 4.5 percent of the brewer's stock, according to a March regulatory filing.
For the other shareholders, the $65-a-share offer, 18 percent above the brewer's previous high in October 2002, is "hard not to accept," without or without Busch family support, said Yacktman, who manages 214,120 shares of Anheuser- Busch.
Barclays Global Investors owns the most Anheuser shares, with a 6.1 percent stake, according to data compiled by Bloomberg. Buffett, with 5 percent of the shares, has owned the stock since April 2005.
An Anheuser purchase of Modelo wouldn't necessarily stop InBev, Craig Hutson, a senior analyst at independent researcher Gimme Credit LLC in Chicago, said last week. If InBev is willing to drop below investment grade, the brewer could take on another $10 billion or more in debt to purchase both brewers. Analysts have said InBev may raise its bid as high as $73 a share.
Exporting Modelo Brands
Beer exports, mostly to the U.S., account for almost half Modelo's sales. The company has three of the seven most popular imported beer brands in the U.S.: Corona, Modelo Especial and Corona Light. Brito's letter said InBev may help "availability of the Grupo Modelo brands outside of North America."
In a 20-year acquisition spree, InBev grew from family- owned Flemish beers to surpass Anheuser-Busch as the largest brewer by sales and came to dominate Latin America. A purchase of Anheuser-Busch would be the second-biggest acquisition of a consumer-products company after Procter & Gamble Co. bought Gillette Co. for $57 billion in 2005. It would also be the biggest cash acquisition on record.
InBev said June 11 it intends to pay for Anheuser-Busch with at least $40 billion of debt arranged by lenders including Banco Santander SA. It's also planning to raise a further $8.3 billion by selling divisions and issuing shares.
Theme Parks Targeted?
Anheuser's theme parks, which include Sea World, and its packaging unit are probable targets, Carlos Laboy, an analyst at Credit Suisse Holdings USA in New York, said in a note.
Brito has said the combined company's more than $36 billion in annual sales and 12 billion gallons of shipments would also allow the negotiation of better terms from suppliers as expenses soar for barley, hops, electricity and metal for beer cans.
InBev, which traces its roots to 1366, took its current form in 2004 when Leuven-based Interbrew SA bought Sao Paulo- based Cia. de Bebidas das Americas, or AmBev, in an $11 billion transaction. In less than two years, Interbrew's American CEO had been replaced by Brito, a Brazilian who had been groomed by Jorge Paulo Lemann and two other Brazilian investment bankers who had built their company from a brewer they acquired in 1989.
Since the merger, InBev's earnings before interest, taxes, depreciation and amortization as a percentage of sales have increased to 35 percent from 25 percent. InBev may have trouble lowering costs given potential resistance from Anheuser-Busch's unions and the low market overlap between the two companies, according to Wachovia Securities Inc. analyst Jonathan Feeney.
The Belgian company hired Lazard Ltd. and JPMorgan Chase & Co. as financial advisers. In addition to Banco Santander, banks financing InBev's proposed takeover are Deutsche Bank AG, Barclays Capital, JPMorgan, Royal Bank of Scotland Group Plc, BNP Paribas SA, Fortis and ING Groep NV.
To contact the reporters on this story: Duane D. Stanford in Atlanta at stanford2(at)bloomberg.net; Caroline Salas in New York at csalas1(at)bloomberg.net. |
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