June 13 (Bloomberg) -- InBev NV, the world's biggest brewer, contacted John Sleeman when the Canadian put his 157- year-old beermaker up for sale in 2006. He told them no thanks and sold to a Japanese buyer who pledged not to close plants or fire workers.

Sleeman had watched as InBev's Brazilian managers took charge of Labatt Brewing Co. in 2004, shut down a plant, cut staff and slashed perks, including first-class airfare.

While employees may have suffered, shareholders didn't. Between 2005 and 2007, cash flow from InBev's North American operations climbed 25 percent to 597 million euros ($916 million), and InBev's shares doubled.

Now InBev has come calling on Anheuser-Busch Cos., making an unsolicited $46.3 billion bid that would be the largest cash takeover in history and combine Budweiser, the so-called King of Beers, with InBev's Stella Artois and Bass brands. Investors sent shares of both companies up more than 5 percent yesterday on the news.

``It looks like the market likes this deal and they're expecting this thing to happen,'' said Malcolm Polley, who helps oversee about $1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania.

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 be the third-biggest U.S. company to be taken over by a foreign buyer, according to data compiled by Bloomberg.

Brazilian Bankers

InBev, dominated by a group of Brazilian investment bankers and managers, has succeeded by focusing on costs and selling into the developing world, where there is a fast- growing population of young, male beer drinkers. The challenge for InBev will be executing a similar strategy in the U.S., where the law protects distributors and the market is growing more slowly, without damaging the Budweiser brand.

``They're an efficiency machine and they'll stop at nothing,'' said Claudio Bueno, a distributor forced out of business when the Brazilian brewer that combined with Interbrew SA to form InBev increased the amount of beer it shipped directly to retailers to cut costs.

The Leuven, Belgium-based brewer also faces a reluctant target in Anheuser-Busch, a five-generation, family-run business that has made Budweiser for 132 years.

A sale of the brewer wasn't going to happen ``on my watch,'' Chief Executive Officer August Busch IV told distributors at an April meeting in Chicago, according to John Economos, CEO of Eagle Rock Distributing Co. in Atlanta, who was present.

Modelo Talks

Anheuser-Busch was holding talks with Corona-maker Grupo Modelo SAB on a combination that might derail InBev's $65-a- share bid, the Wall Street Journal reported yesterday.

Anheuser-Busch, which already owns 50 percent of the Mexican brewer, approached Modelo Chief Executive Officer Carlos Fernandez, who is an Anheuser-Busch board member, the Journal said, citing people familiar with the discussions.

Combining with the Mexican company may also face obstacles. Grupo Modelo said in an e-mailed statement that it plans to remain a Mexican-owned company and will make any needed decisions should Anheuser-Busch and InBev decide to merge.

Randolph Baker, Anheuser-Busch's chief financial officer, declined to comment on the report.

Busch, the great-great-grandson of co-founder Adolphus Busch, sent an e-mail to the company's beer distributors this week saying a decision may take months or longer.

Lacking Shares

Even if it tries, the Busch family doesn't have enough shares to derail a purchase. The company's executives and directors, including family members and outsiders, have just 4.5 percent of Anheuser-Busch's outstanding stock. Besides August Busch III, the father of the CEO, no family member holds more than 1 percent of the company, according to a March regulatory filing.

Some members of the family support negotiations with InBev, while others oppose it, the Journal said, citing family member Adolphus Busch IV. Directors are similarly split, the newspaper said.

Warren Buffett's Berkshire Hathaway Inc. is the brewer's second-biggest shareholder with a 5 percent stake, behind Barclays Global Investors' 6.1 percent, according to data compiled by Bloomberg.

Even as banks worldwide offer fewer loans, InBev plans to pay for Anheuser-Busch with debt arranged by lenders including Banco Santander SA. Depending on the size of the loan, InBev may have to sell less stock than some analysts had expected to fund the purchase.

Maintaining Breweries

InBev pledged not to dismantle Anheuser-Busch, the top U.S. brewer for half a century. ``Given your efficient brewery footprint in the United States, we will maintain all your existing breweries,'' Carlos Brito, InBev's chief executive officer, said in a letter to CEO Busch.

Brito, 48, said the acquisition would be ``a big international opportunity'' to bring Budweiser to more than 30 countries where InBev has breweries. 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, he said.

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.

Beer Sales

Interbrew's combination with AmBev created the largest beermaker in the world. InBev sold 20.6 billion liters of beer globally in 2006, compared with 14.7 billion liters for third place Anheuser-Busch. SABMiller Plc sold 16.3 billion liters, according to Euromonitor International Inc. in Chicago.

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.

Anheuser-Busch fell 28 cents to $61.12 at 4:15 p.m. in New York Stock Exchange composite trading. InBev shares dropped 78 cents, or 1.6 percent, to 49.43 euros in Brussels while Grupo Modelo declined 82 centavos, or 1.5 percent, to 54.83 pesos.

Some Fat

``Bud does have some fat in its business, and InBev, or the Brazilians I should say, are the experts in extracting it,'' said Christopher Gower, an analyst at MF Global Securities in London. InBev might offer as much as $73 a share should Anheuser-Busch reject its advances, according to analysts.

A trained engineer, Brito describes InBev as a meritocracy, where top-performers are rewarded and expensive perks aren't tolerated. Success is measured by numbers, and those who don't fit often leave.

``I don't want a company car, I don't care,'' he said in a February speech at Stanford Graduate School of Business, where he received an MBA in 1989. ``I don't want the company to give me free beer. I can buy my own beer.''

Brito said during a conference call yesterday that he will cut costs by exploiting the combined company's size to get lower prices for ingredients and packaging materials, eliminating some market overlap and cutting redundant corporate expenses. Brito wouldn't say how much savings he was targeting.

InBev may have trouble lowering costs given potential resistance from Anheuser-Busch's unions and the low market overlap between the two companies, said Jonathan Feeney, an analyst with Wachovia Securities Inc. in New York.

`Deal Difficulties'

``The highly regulated nature of the beer industry could pose other deal difficulties,'' Feeney said.

Governor Matthew Blunt of Missouri on June 11 called InBev's approach ``deeply troubling'' and said he opposed any sale. The Web site saveab.com in St. Louis says it's trying to rally Americans to ``fight the foreign invasion'' of Anheuser- Busch.

The name of the combined company would ``evoke Anheuser- Busch's heritage,'' InBev said this week.

Anheuser-Busch said in a statement that its board will ``pursue the course of action that is in the best interests of Anheuser-Busch's stockholders'' and make a decision ``in due course.'' InBev's bid is 18 percent higher than Anheuser- Busch's previous high in October 2002.

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.

Culture Clash

InBev's acquisition strategy might clash with the culture of Anheuser-Busch, which has a reputation for close relationships with distributors and expensive marketing.

The prospect of an InBev takeover is frightening to Anheuser-Busch distributors, said Joe Thompson, president of Independent Beverage Group in Hilton Head Island, South Carolina, which brokers buyouts between beer distributors.

``They just worry about losing their influence with their supplier,'' he said. ``If you can pick up the phone and call Vice President of Marketing Dave Peacock because you've known him for 20 years, it's a lot better than picking up the phone and calling someone in Brazil.''

While InBev sells beer in more than 130 countries and is growing in China and Russia, it generates less than 1 percent of its beer volume in the U.S. Anheuser-Busch's domestic sales have slowed in recent years because of competition from wine and smaller craft beers, with annual domestic shipments of Budweiser declining 17 percent from 2004 to 2007, according to industry newsletter Beer Marketer's Insights.

Cut Victim

Bueno, 42, the former AmBev distributor in Taubate, a town in Sao Paulo state, says he fell victim to the brewer's cost- cutting zeal in 2002 when he lost the 15-truck business founded by his grandfather. He alleges AmBev put him out of business by allowing wholesale outlets to sell cans of beer at a discount to what he charged bars and restaurants for the same product.

At the time, AmBev was trimming costs by deploying its own trucks to distribute beer, cutting out middlemen such as Bueno. Marianne Amssoms, an InBev spokeswoman in Leuven, said the company is simply trying to control costs.

``We are cost-conscious and we try to use the company's resources in the most efficient way,'' she said.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.netDuane Stanford in Atlanta at dstanford2@bloomberg.net.

Last Updated: June 13, 2008 16:39 EDT