The King of Beers is moving closer to wearing a foreign crown. After a week of contentious wrangling that included lawsuits and Securities and Exchange Commission filings, Anheuser-Busch (BUD), according to published reports and people who have been briefed, has engaged Belgian brewing giant InBev (INTB.BR) on a $70-per-share, nearly $50 billion deal to buy the company.
The St. Louis-based parent of Budweiser beer has been working for six weeks in a campaign to discourage InBev (BusinessWeek.com, 7/10/08), line up politicians to oppose the deal, and convince shareholders that a takeover by InBev, which markets brands like Stella Artois, Bass, and Beck's, is not in the best interest of the company or their investments. But a sweetened offer and mounting pressure on A-B management have brought the two companies to actual negotiations.
Anheuser shares jumped nearly 8% on the news in early trading on July 11. InBev shares also rose about 7% Friday on the Brussels Stock Exchange. InBev officials declined to comment on the reports.
Busch Family Backed Into a Corner
But it's far from a done deal. In the coming days, A-B and its financial advisers—Goldman Sachs (GS) and Citigroup (C)—will be diving into the details of InBev's financing for the deal. A-B filed suit July 8 in U.S. District Court in St. Louis charging that InBev hadn't been honest with shareholders about the nature of its proposed financing, expressing doubt that the company could even get that much financing in today's tight credit markets for a hostile deal.
Still, the Anheuser-Busch board is expected to accept an increased offer. Trevor Stirling, an analyst with Sanford C. Bernstein in London, said a $70 bid by InBev "still makes sense" for shareholders. However, "if the price rises to the $80 level, you will start to have some pushback from [InBev] shareholders."
Despite opposition to the idea of a takeover expressed by A-B Chief Executive August Busch IV, the Busch family, which owns less than 4% of the company, has been backed into a corner by the fact that the company's share price languished for three years before InBev's interest earlier this year. Since April 1, A-B's shares have risen from $48 to $66.
There is little the American brewer can do to restructure the company to come close to InBev's offer. Michael Roberto, professor of management at Bryant University in Smithfield, R.I., who has followed the deal, says Anheuser-Busch could sell assets like its theme park businesses and packaging unit. "But that doesn't get you to $65 a share without InBev in the picture," he says.
Over the weekend, the two companies are expected to discuss the role of A-B's management in a combined company, the name of the company, and the future of A-B's employees, St. Louis headquarters, and distribution network. The combination of the two giants would create the world's largest brewer with net sales of about $36 billion annually. Combined, the two market about 300 brands on six continents, producing in total 10 billion gallons of beer each year. InBev and Anheuser are the second- and third-largest brewers in the world in terms of volume, respectively, after London's SABMiller (SAB.L).