After months of speculation and rumors, it's official. Anheuser-Busch Cos. is the target of the biggest takeover bid in the global beer industry's history.
InBev of Belgium has launched an unsolicited bid to take over St. Louis-based Anheuser-Busch Cos., the brewer of Budweiser and the country's biggest beer maker. The $46.3 billion bid -- amounting to $65 per share, in cash -- would transform the industry, creating a global brewing behemoth selling about one-fourth of the world's beer.
It also would end Anheuser-Busch's 156-year run as an independent company. The combined company would become 60 percent bigger than the next largest brewer, SABMiller of London, and 2 1/2 times as big as Dutch brewer Heineken.
On June 2, August A. Busch IV, president and chief executive of Anheuser-Busch, met with InBev representatives -- Brazilian beer billionaires Jorge Paulo Lemann and Marcel Telles -- in Tampa, Fla. Busch wanted to know: Did InBev have a formal proposal to make?
Nine days later, he got his answer: a letter from InBev chief executive Carlos Brito.
In a news release, Anheuser-Busch said its board of directors will "evaluate the proposal carefully and in the context of all relevant factors," including Anheuser-Busch's long-term strategy.
InBev said it envisions keeping St. Louis as the headquarters for InBev's North American region, keeping all of Anheuser-Busch's 12 U.S. breweries running and renaming the combined company "to evoke Anheuser-Busch's heritage."
Optimists say the deal could patch the two companies' weaknesses. Anheuser-Busch is heavily dependent on the profitable but slow-growing U.S. market; its stake is relatively smaller in some fast-growing international markets such as Russia. InBev is strong in Brazil and other Latin American nations but has historically lacked a major presence in the U.S.
Until now, Anheuser-Busch has largely avoided a trend of mergers and acquisitions in the beer industry. It is unclear whether that go-it-alone approach can last.
"The industry's been consolidating," said Edward Jones analyst Jack Russo. "Everything and everybody is fair game."
Public details of the offer did not disclose how much cost-cutting InBev would seek if it took over Anheuser-Busch. InBev has hung its reputation on aggressive acquisitions and equally tenacious cost-cutting.
A few years ago at the headquarters of the company's AmBev wing in Brazil, paper and phone calls were reportedly rationed; the CEO and chief financial officer shared the same desk.
Although InBev and Anheuser-Busch already cooperate in Canada, South Korea and the U.S. -- where A-B distributes Stella Artois and other InBev beers -- some industry observers have predicted a major culture clash if the two companies combine.
BUD AS FLAGSHIP BRAND
The deal, expected to be financed with at least $40 billion in debt, would make the combined brewer one of the world's five largest consumer products companies. It would have net sales of about $36.4 billion and unadjusted earnings of $10.7 billion, according to InBev's calculations.
InBev couched the proposal in friendly terms. It said it would invite a number of Anheuser-Busch directors to join the board of the new company, and would retain key members of the Anheuser-Busch management team at all levels of seniority. A major goal would be to make Budweiser the company's flagship brand, using the combined company's international footprint to enhance the beer's image and exposure, the Belgian brewer said.
"We have the highest respect for Anheuser-Busch, its employees and leadership, as well as the generations of investment that have created the Anheuser-Busch brands, particularly the iconic Budweiser brand," Brito told Busch in a letter dated Wednesday. "We hold your management's marketing and sales capabilities in great esteem and hope that the combined company will be able to draw on their collective expertise."
InBev wants to work with Anheuser-Busch's Mexican partner, Grupo Modelo, to accelerate the development of Modelo's brands outside North America. Anheuser-Busch owns about 50 percent of Modelo, Mexico's biggest brewer and the maker of Corona.
To help pay for the deal, InBev said it would sell off "non-core assets." It wasn't clear whether InBev was referring to its own assets or those of Anheuser-Busch. In addition to its main brewing operations, Anheuser-Busch owns theme parks, recycling and packaging businesses, as well as minority stakes in smaller brewers.
Anheuser-Busch said its board will review the merits of the proposal "consistent with its fiduciary duties and in consultation with its financial and legal advisers." It said the board would pursue the course of action "that is in the best interests of Anheuser-Busch's stockholders."
But analysts don't see how Anheuser-Busch could stop this deal.
InBev will "get this done," with the "reluctant" acceptance of Anheuser-Busch's board, predicted Morningstar analyst Ann Gilpin. If the Anheuser-Busch board balks and rejects the bid -- or demands a higher price -- "InBev would just go straight to the shareholders, and I think the shareholders would vote for it," she said.
The bid of $65 a share offers a 24 percent premium to Anheuser-Busch's closing stock price on May 22 -- the day before reports of an impending deal with InBev touched off frenzied buying.
The bid, said Gilpin, is "pretty sweet."
LOCAL RESISTANCE
But rumors of the deal have stirred heated discussions about how the takeover of the big U.S. brewer would damage its brands and American identity. Websites urging grass-roots drives to "save" Anheuser-Busch have popped up; one Facebook group blasting InBev's interest in Anheuser-Busch has more than 16,700 members.
During happy hour at Flannery's in downtown St. Louis, several customers weren't happy about the bid.
"I want to know what's going to happen with the brewery and management, what it's going to do to the city," said Soulard resident Kat McGrath, 25. Anheuser-Busch is "the only thing that puts St. Louis on the map."
The potential deal is "quite appalling," said Elizabeth Hazzard, 24, of Swansea, as she eyed baseball games on several big screens.
Anheuser-Busch said its board expects to make its determination regarding InBev's proposal "in due course." InBev said the proposed deal could be completed promptly.
In an e-mail to employees and wholesalers, Busch indicated the process of reviewing the bid could take several months.
"There is nothing you should be doing, other than continuing to focus on business as usual," he wrote. "Right now, I ask that all of you remember to keep our business first and foremost in your minds. ... It is important that we all carry on our responsibilities and stay focused on results."
A number of factors apparently spurred InBev to make an offer, said Stuart Greenbaum, former dean of the Olin Business School at Washington University. For one, InBev doesn't have a strong American brand.
The Busch family owns only a tiny slice of Anheuser-Busch, making it tough for the family to fight a takeover. Plus, the dollar is weak versus the euro -- Europe's main currency -- making Anheuser-Busch stock cheaper for a European bidder. Anheuser-Busch was a "target of opportunity," Greenbaum said.
"The deal was predictable," he said. "They were ripe."
Anheuser-Busch apparently does not have extensive takeover defenses. Three and a half years ago, the company allowed its "poison pill" provision to expire. It would have prevented a hostile party from acquiring more than 20 percent of the company's stock. The provision could be reinstated quickly, said Beth Young of the Corporate Library research group.
Next year, the entire Anheuser-Busch board will be up for re-election, theoretically making it easier for a hostile bidder to replace directors.
Missouri Gov. Matt Blunt said he was "strongly opposed" to the sale of Anheuser-Busch.
"Today's offer to purchase the company is deeply troubling to me," he said in a statement. "I have said that while I am supportive of action to prevent the sale, there is no immediate tool available at the state level to block it."
The board could argue that a deal would allow InBev to buy Anheuser-Busch on the cheap. The argument could go like this: The Belgian brewer needs a short-term jolt, but Anheuser-Busch's plan for long-term growth will take time to bear fruit.
The question is whether shareholders would be patient, valuing the promise of future growth more than an immediate payout.
St. Louis officials are trying to make the case for the former. City officials are preparing a letter to local shareholders, explaining Anheuser-Busch's economic importance to the region and urging stockholders to take it into account in weighing a takeover bid.
"The brewery has a gigantic impact on St. Louis and on the country," said Jeff Rainford, chief of staff for St. Louis Mayor Francis Slay. "Everybody needs to understand what's at stake. ... We're certainly not going to go quietly."
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