InBev may get Anheuser-Busch, but at higher cost

As InBev CEO Carlos Brito wooed Anheuser-Busch bud shareholders on a conference call to accept an all-cash takeover offer of $47 billion, analysts say he'll likely get the biggest U.S. brewer but have to pay more.

He reiterated promises made in his three-page offer letter on Wednesday to A-B CEO August Busch IV. In addition to the then-35% premium of $65 a share, he vowed to keep the headquarters in St. Louis, keep the 12 breweries and respect A-B's 148-year heritage. InBev — maker of Beck's and Stella Artois beers, among many brands you probably never heard of — also posted online a 12-minute question-and-answer video about corporate cultures, foreign ownership and plans for existing wholesalers.

A-B has acknowledged receipt of the letter but has had no further comment.

In the letter, Brito said the bid is a "compelling offer for A-B shareholders to create immediate and certain value, as well as a significant return on their investment." The offer is 18% higher than A-B's previous all-time-high share price of $54.97 six years ago.

"If the deal closes, A-B shareholders are the obvious winners," Carlos Laboy, Credit Suisse beverage analyst, wrote Thursday. "Shareholders will likely get at least $65 per share, with possibly more if the Busch family is successful in plying more out of InBev."

Morgan Stanley analyst Bill Pecoriello called a deal, even at $70 per share, "low returns" but said that A-B "might ultimately have to surrender at that price."

Brito, whose company is known for boosting margins through ruthless cost-cutting, may have conceded that InBev needs A-B more than A-B needs InBev. InBev's first-quarter earnings out May 8 showed revenue up 4.8%, but volume flat in Latin America, its biggest market. It forecast that in 2008, "there will be greater challenges to overcome."

Analysts including Laboy believe InBev has squeezed as much cost as it can from prior acquisitions and sees opportunity to do that with A-B.

InBev proposes to divest "non-core" A-B properties, but would not name them.

Brito acknowledged on a conference call Thursday that he has a limit on what he'll pay above $65.

"We have a number, but we're not disclosing the number," he said in response to a question by MainFirst Bank beverage analyst Mark Gillespie, who suggested A-B shareholders would push for a higher price.

A-B's stock closed Thursday at $61.40, up 5.2%, on volume more than 12 times its 6.7 million average.

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