“A New Anheuser-Busch”?

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Brew Blog

Will it be enough to stave off InBev?

Anheuser-Busch CEO August Busch IV told investors on Friday that A-B has a new expertise beyond brand building: Cost cutting.

Making A-B’s case that InBev’s unsolicited, $65-per-share bid for the company is too low, A-B execs laid out a plan to cut $1 billion of costs from the company between 2008 and 2010. That’s up from $500 million in savings A-B described in February.

The savings would be generated by A-B’s “Blue Ocean” program, which is driven by a recognition that “we needed to break from a conservative culture,” Busch said. The plans A-B laid out reveal “a new Anheuser-Busch.”

The question is: Will A-B’s plan be enough to persuade investors to pass up InBev’s offer?

Press reports prior to the call suggested that, despite the posturing of the two companies, InBev and A-B might reach a friendly deal – particularly if InBev sweetens the offer.

From Reuters:

KBC Securities analyst Wim Hoste said InBev had two options: either to raise its offer towards $70 per share or go hostile at the existing $65, with a preference for the former.

“I can imagine they might try through informal contact to see if there is scope to talk about an offer. If not then they would take the hostile route,” he said. “But the friendly approach is clearly better for public opinion and the workforce. The company is a U.S. icon.”

Bloomberg:

Colin Symons, whose Pittsburgh-based Symons Capital Management Inc. manages $325 million in assets, said Anheuser- Busch might still accept as little as $67 a share, or $47.8 billion, should it become clear that InBev can successfully lobby shareholders to tender their stock.

A price of $67 “would probably assuage the feelings of everybody,” Symons said. His Symons Alpha Value Institutional Fund is down less than 1 percent this year, outperforming 96 percent of its peers, according to data compiled by Bloomberg.

It remains to be seen how investors and InBev will react. A-B laid out plans on how it would generate savings. From Beer Business Daily:

A-B cfo Randy Baker said that their cost reduction initiatives will center around “more disciplined” cap ex spending, process benchmarking, energy and environmental projects, supply chain savings, improved material usage, and business process redesign. A-B will also offer up a new early retirement program to be offered to their salaried workforce in Q3, seeking to reduce it by 10 to 15%. There will be one-time charges to be associated with this program, estimated at around $300 to $400 million charge in Q4. August said there are about 8,500 total salaried employees, of which about 1,500 are over age 50.

These cost savings – coupled with topline growth – would generate earnings well ahead of analyst expectations, A-B said. From the Associated Press:

As part of the plan, Anheuser-Busch said it expects low-double digit earnings per share growth in fiscal 2008, with a target of $3.13 per share.

Analysts polled by Thomson Financial, on average, predict a profit of $3.01 per share.

For fiscal 2009, the company expects earnings of $3.90 per share, while analysts predict $3.29 per share.

Execs said they would not reduce marketing spending or sell off A-B’s packaging division or theme parks. Busch concluded the call by saying A-B would challenge InBev’s court claim that A-B shareholders could dump all of A-B’s directors without cause.

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One Response to ““A New Anheuser-Busch”?”

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