The strategy Anheuser-Bush (BUD) is adopting to thwart a takeover by Belgian brewing giant InBev (INTB) will seem familiar to college basketball fans. It's out of the playbook written by former University of North Carolina basketball coaching legend Dean Smith, and it's called four corners.
For those whose knowledge of college basketball goes back only as far as the shot clock, the strategy was to tie up the ball for long periods by passing it back and forth between four players. Back in the day, with the right players, the stalling tactic was quite effective in confounding the opponent (and putting the crowd to sleep).
The delay, in this case, is clear: St. Louis-based Anheuser-Busch has held off meeting with InBev to discuss the European company's $46 billion offer. Meanwhile, the two brewing giants have furiously traded press releases, advertisements, and lawsuits as if they were political candidates battling a disputed election.
On July 9, Anheuser-Busch urged its shareholders by mail and press release to withhold their consent from InBev. On July 7, InBev had filed documents with the Securities & Exchange Commission seeking to get Anheuser-Busch shareholder backing for a new slate of directors. On July 8, Anheuser-Busch also filed suit against InBev in a Missouri court, charging that InBev has misled investors about the security of the company's proposed financing of the takeover.
The brewer of Budweiser is even alleging that InBev's business interests in Cuba should disqualify it from buying Anheuser-Busch, since U.S. companies are restricted from doing business there.
And so it is likely to go. Analysts and academics who follow corporate takeovers say that while InBev's offer of $65 per share for Anheuser-Busch appears fully valued, the brewer's tactics are likely to result either in InBev raising its bid or putting it off entirely.
The Belgian company, which markets the Stella Artois brand among others, may even be forced into the friendlier arms of Anheuser-Busch rival SABMiller. If Anheuser-Busch is successful in blocking InBev, the Belgian company will still be revved up to make a deal. According to one beer industry consultant who has worked for both Anheuser-Busch and InBev, SABMiller has already informally communicated to InBev that it would be happy to sit down and discuss a merger. The South African-based SABMiller has, according to one Wall Street analyst, also been "talking informally" with Molson Coors Brewing (TAP).
The Busch Family's Turf
Even before InBev showed interest, Anheuser-Busch had seen its share of the U.S. beer market slide—from 52% in 2002 to slightly less than 50% today—and its share price stagnate. The company has been stung by shifting tastes of beer drinkers toward more premium beer, wine, and spirits.
But Anheuser-Busch CEO August Busch IV and his father, August Busch III, do not intend sell the company started by their family in the 19th century. And especially not to InBev CEO Carlos Brito, whom they view as a hatchet-wielding cost-cutter who will strip the company and relegate the Busch family to shareholders rather than managers.
With its tactics against InBev, Anheuser-Busch is sending the message that either its offer price has to be higher to entice the Busch family (which owns just under 4% of the company) or it has to be prepared to "go hostile," says Michael Roberto, professor of management at Bryant University in Smithfield, R.I. He adds: "Going hostile makes it much more difficult to integrate the two companies after the deal is over, and that doesn't sit well with financiers."
Indeed, the details of the lawsuit filed by Anheuser-Busch in Federal District Court in St. Louis seem to indicate its executives believe they have identified weak points that can be exploited against a hostile takeover.
Unfriendly Credit Markets?
For one, Anheuser-Busch claims the Belgian rival used an "illegal plan and scheme…through a course of deceptive conduct, to acquire control of Anheuser-Busch at a bargain price that does not adequately compensate shareholders for their investment in the company." Anheuser-Busch asked the court to block the Belgian giant from taking any further actions "until such time as it has cured each and all of its false and misleading statements." Anheuser-Busch said in the complaint that the so-called deceptive effort began when InBev launched "a campaign of acquisition rumors" in May "through the dissemination of false and/or misleading statements."
Specifically, the suit charges that InBev used "materially misleading" statements intended to convince investors and others that it had obtained commitments for more than $40 billion in financing, "when in fact it had no firm commitment from any bank." The suit went on: "Given the state of the credit markets today, no group of financial institutions would unconditionally commit $40 billion to a borrower to pursue a hostile acquisition."
InBev has not responded yet to the lawsuit.
It's About the Brand
Outside the courtroom, Anheuser-Busch is trying to plant the idea that its vaunted Bud brand would be damaged if it agreed to a deal with InBev and then InBev had to drop the bid because funds don't materialize. The suit states: "Any commitment letters InBev has received are certainly laden with conditions leaving the proposed financing banks free to walk away in any number of circumstances." Anheuser-Busch is also trying to convey the idea that InBev will be too highly leveraged to run the combined company effectively after a deal is consummated.
The Washington card may be harder for Anheuser-Busch to play. Congress usually reserves its involvement in corporate mergers and takeovers in areas that could impact national security. But in this case, some members have shown keen interest in the potential loss of ownership of an American icon (BusinessWeek.com, 7/9/08) like Budweiser. With national unemployment at 5.5% as of June and with free-trade agreements a hot-button issue in the Presidential election, any deal that could possibly result in a loss of jobs is going to be targeted by members of Congress. InBev's Brito has already met with Senator Claire McCaskill (D-Mo.) and other members of the Missouri congressional delegation.
Anheuser-Busch has several Washington lobbying firms working the political machinery. They include the Gephardt Group, led by Dick Gephardt, ex-Democratic House leader who formerly represented a St. Louis-based congressional district; Public Strategies Washington, which includes former White House press secretary Michael McCurry; Timmons, the city's oldest lobbying firm; and Akin Gump Strauss Hauer & Feld, Washington's second-largest lobbying law firm.
Missouri politicians hardly need prodding to resist a loss of local control over the biggest corporate name in St. Louis. Matt Blunt, governor of Missouri, has made a bipartisan plea for a U.S. antitrust review to block the sale.
However, it may be hard to justify blocking a takeover on antitrust grounds. With brands like Stella Artois, Bass, and Becks, InBev doesn't hold enough of the U.S. beer market to present a legitimate threat to competition. And there is nothing new about foreign ownership of consumer goods companies—several other iconic American brands have been bought and sold without much hand-wringing from Congress. Miller Brewing is already foreign-owned. Wild Turkey Bourbon is owned by French wine and spirits company Pernod Ricard. Chrysler was bought by German automaker Daimler-Benz, which holds a minority ownership now that the Detroit automaker has been sold again to Cerberus.
With both General Motors (GM) and Ford (F) struggling financially in a recession of indeterminate length, it's not inconceivable that one or both of those giants may eventually need some form of bailout from Toyota TM or Renault-Nissan to stay above water.
Even if Anheuser-Busch is successful in fending off InBev, it will have a crew of angry shareholders to deal with. Anheuser-Busch stock, now trading above $60, could easily fall back to $50 or below, where it was before the takeover interest surfaced. The company has put forth a restructuring plan that calls for raising beer prices, and, say Wall Street analysts, will likely be expanded to try and sell its theme park and packaging divisions. "But that doesn't get you back to $65 a share," says Bryant University's Roberto.
If all else fails, would the Busch Family and its financial advisers, Goldman Sachs GS, test the private equity waters? It's possible; even though capital markets are tight these days, deals such as the $52 billion private-equity buyout of Canada's BCE (BCE) are still going forward.
The likely outcome for Anheuser-Busch in any case seems to be a change in ownership. But the Busch family is acting to make sure it happens on its terms and at its price.
Editor's note: An earlier version of this story credited the four corners defense to John Wooden