Will He Or Won’t He?


Brew Blog

Reported InBev offer puts heat on August Busch IV.

The long-rumored merger of InBev and Anheuser-Busch appears not to be in the cards.

Instead it appears an outright takeover of A-B could be in the works.

And the big question if InBev pulls the trigger on its bid is whether it will go — and whether fifth-generation brewer August Busch IV will be willing to sell the company that bears the family name.

A highly detailed report in the Financial Times — which laid out the terms of the putative offer ($65 per share) as well as names of banks and advisers involved — notes that InBev approached August Busch IV in October about a deal.

From the story:

Sources with a close knowledge of the putative deal said an approach to Anheuser by InBev was first made informally last October, but August Busch insisted he would protect Anheuser’s independence and wanted time to show his mettle at a job to which he had only recently been promoted.

But InBev’s advisers believe Mr Busch would now succumb to shareholder pressure to open merger talks and are banking on the fact that Anheuser’s board would feel duty bound to follow due process and formally consider a bid if they received a private offer pitched at a substantial premium.

Recall that August Busch IV — who has had to contend with rumors about a deal with InBev since taking the e top job more than a year ago — last month told distributors that A-B won’t be acquired on “my watch,” according to the Wall Street Journal.

But with InBev reportedly offering $65 a share for A-B, a nearly 24 percent premium over Thursday’s closing price of $52.58, August Busch IV will have to pay attention.

“If indeed a hostile bid is in the works, A-B management will have to convince its board and shareholders that it has the means for delivering higher value,” Credit Suisse analyst Carlos Laboy noted in a report today.

(Laboy thinks that if a hostile bid is in the works, the price could go higher. From his report: “This $65 bid is on target with our DCF fair value and sum-of-the-parts valuation for BUD published yesterday and consistent with our view that InBev wants and needs this deal but the timing is not perfect and a hostile bid would have to go at a higher price than this DCF fair value.”)

A Credit Suisse report released Thursday — the day before news broke about the putative deal — noted that a combination of InBev and A-B held great potential for culture clash. InBev is famous for cutting costs and driving efficiency whereas A-B is a brand-led company that invests heavily in brands and people.

From the report:

If most mergers fail because of culture clash, this might be the Clash of the Cultural Titans. It is our view that a hostile bid originating from InBev would create extraordinary difficulties for both parties which may ultimately threaten the reason for the deal. An unsolicited bid would put the management of A-B immediately in a defensive posture and this would be problematic along several lines.

Simple pride is obviously an issue, but ultimately we believe that for an A-B-InBev combination to work, top A-B management would need a role and feel invested in the success of the new entity. This is because we believe InBev would need the buy-in (and moral authority) of A-B top management to facilitate the implementation of InBev’s difficult but effective Zero-Based Budgeting (ZBB) philosophy.

If InBev pushes the button on the offer, August Busch IV will have a profoundly challenging decision to make, the report says:

“The King of Beers” is not meant ironically; A-B’s roots are deeply entrenched in a stable, multicentury family brewing tradition. For a proud and patriotic company like A-B, where the quality of life for employees is very high, we believe selling out to a foreign entity that focuses so hard on cost control as a way to create value would be extraordinarily difficult. If the Molson and Coors families were not excited (initially) about the prospect of selling to a European brewer, we strongly doubt the Busch family would be either.

The report can be seen here.

The Wall Street Journal covers today’s story here.




One Response to “Will He Or Won’t He?”

  1. AB Employee Says:

    I am a long time management employee of Anheuser-Busch. I am commenting as a individual employee not as a company spokesperson. The comments that we are not capable of aggressive cost cutting is simply not true. We have been aggressively cutting costs and continue to meet or exceed our goals. We are now on track to cut costs at a comparable level that has been mentioned as a target for INBEV if they should succeed in their AB takeover attempt. We have introduced more new products than our competitors and they are taking hold in the marketplace. We run the most efficient technologically advanced breweries in the world. We do all of this while maintaining a superior product quality that our competitors can’t meet. Why would we want to sell a classic American Company to a foreign company when we are on track to accomplish all they would do and more. Yes it is true AB was sleeping while others were on a buying spree. If you look at the history of AB you will notice AB generally gets off to a slow start then overtakes all competition. The light beer category is a good example. We started out behind but now lead in sales of light beers. INBEV has built an empire by purchasing, then chopping heads off. History shows this style of management fails in the long run. The only way INBEV could save more money would be to cut advertising, burn out human resources and reduce product quality.
    These are frustrating times for us. With the dollar down we are not in a good bargaining position. We believe strongly that our management style is superior and yields long term loyalty that pays dividends many years into the future. If InBev is successful and completes a hostile takeover they will need to terminate most if not all management at Anheuser-Busch. I for one believe strongly in the time tested and proven management style that we employ. I can’t see myself adopting the selfish and short sighted InBev style. I know I am not alone, wonder how they will run the complex Anheuser-Busch organization with a hostile management team. My guess is they can’t and would attempt to placate individuals for at least a year, then chop heads. This indeed would be a clash of the titans, is that good for the stock holders? I don’t think so.

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