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Breakup Would Cost A-B or InBev $1.25 Billion |
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Thursday, 17 July 2008 |
InBev's takeover of Anheuser-Busch Cos. carries massive penalties for scuttling the deal but large bonuses for select Anheuser-Busch employees who help make it work.
The companies cemented the $52 billion deal with a $1.25 billion breakup fee, which Anheuser-Busch would be required to pay Belgian brewer InBev if the St. Louis-based brewer causes the deal to fall apart.
Likewise, if InBev's shareholders fail to approve the deal, InBev would be obligated to pay Anheuser-Busch $1.25 billion. Neither situation is expected to arise.
The terms of the takeover were filed Wednesday with the Securities and Exchange Commission.
The takeover agreement also provides protections and bigger pay opportunities for about 360 key employees of Anheuser-Busch. Those employees will be eligible for "integration bonuses" if they help Anheuser-Busch achieve its cost-cutting goals under a program called Blue Ocean.
The same group of about 360 employees will be eligible for bigger severance benefits if they are fired within two years of the deal closing.
The agreement also guarantees that Anheuser-Busch InBev, as the new company will be called, will not cut the aggregate compensation and benefits for Anheuser-Busch employees for about one year after the deal closes. As of Dec. 31, Anheuser-Busch had about 31,000 full-time employees.
But for Anheuser-Busch's sprawling network of beer distributors, the takeover of the St. Louis brewer raises serious questions about how consumers will accept the change -- and how InBev executives will work with wholesalers.
InBev has a "very different experience of dealing with distributors" than does Anheuser-Busch -- a dynamic that could lead to skepticism and mistrust -- Credit Suisse analyst Carlos Laboy wrote this week. In some markets, InBev has pushed distributors to consolidate and has sliced into their profits, he said.
On Tuesday, InBev CEO Carlos Brito tried to get off on the right foot with the distributors. "We like the system, we like wholesalers," he said in a conference call. "With wholesalers, you have people that are interested ... (in) the short term as well as the long term."
A transcript of the conference call was filed Wednesday with the SEC.
One Florida distributor warned that he was sensing a "huge amount of backlash" in the market from consumers wanting to know when they should stop drinking Anheuser-Busch beers since -- they said -- "it will not be an American brand anymore."
"That could have some serious repercussions with some of our loyalist drinkers and we're very, very worried about that," he said.
August A. Busch IV, the CEO of Anheuser-Busch, previously told the Post-Dispatch that the company could work through the issue with deft marketing and community relations. In the conference call on Tuesday, he said the backlash is "something we have to be very, very mindful of."
Busch said Anheuser-Busch was open to "any and all" ideas to calm the situation. "We are still an American company," he said. "We will be brewed in America. We will make sure that the consumer knows about that."
Brito, no stranger to nationalistic backlash, said consumers are more worried about $4-a-gallon gasoline and the soaring cost of food than the buyout of Anheuser-Busch.
The InBev CEO said the example of Brazilian brewer AmBev -- now a wing of InBev -- taking over Argentinian brewer Quilmes in 2002 proves that patriotic concerns can be soothed.
Quilmes had a huge presence in Argentina and even wrapped its beers in the colors of Argentina's flag. Brazil and Argentina harbor deep-seated rivalry, including one that revolves around soccer, so competitors swooped in with prime-time TV ads accusing Quilmes of no longer being Argentine.
But Quilmes kept growing and remains the market leader with established sponsorships, he said.
"In the end," said Brito, the dust-up "was forgotten."
Copyright (c) 2008, St. Louis Post-Dispatch
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