A-B Board Rejects InBev Offer
By Jeremiah McWilliams and Jeffrey Tomich, St. Louis Post-Dispatch
Jun. 26–The standoff between two of the world’s biggest brewers intensified Thursday as Anheuser-Busch Cos. rejected a $47.5 billion buyout bid from rival InBev, setting the stage for a fight that could drag on for months.
The board of directors of St. Louis-based Anheuser-Busch unanimously rejected a $65-per-share takeover bid from InBev of Belgium, calling the proposal “financially inadequate and not in the best interests of Anheuser-Busch shareholders.”
“InBev’s proposal significantly undervalues the unique assets and prospects of Anheuser-Busch,” said Patrick Stokes, chairman of Anheuser-Busch’s board, in a statement. “The proposed price does not reflect the strength of Anheuser-Busch’s global, iconic brands Bud Light and Budweiser, the top two selling beer brands in the world, with Budweiser selling in more than 80 countries today.”
Stokes said the proposal “also undervalues the earnings growth actions that the company had already planned, which have significant potential for shareholder value creation; the company’s market position in the United States, the most-profitable beer market in the world; and the high value of its existing strategic investments.”
Douglas A. Warner III, the board’s lead independent director, said InBev’s proposal “fails to be competitive with alternative plans the company has developed in recent months to generate significant top-line and bottom-line growth, which will increase value for the company’s shareholders.” In a statement, he said the board would continue to consider all opportunities that build shareholder value.
In a letter to InBev Chief Executive Carlos Brito, August A. Busch IV said Anheuser-Busch’s beer brand building expertise is “an asset without comparison.” Busch, CEO of Anheuser-Busch, said that expertise is just one asset InBev undervalued.
Busch also said “recent change of control acquisitions of other major consumer product companies with iconic brands have been valued at much higher multiples than what you have proposed for Anheuser-Busch shareholders.”
Busch said Anheuser-Busch has expanded its productivity plan to slash $1 billion in costs through 2010 — compared to the latest public plan of cutting more than $400 million over the next four years. But the company gave few other details as to its strategic plan.
In the letter dated today, Busch told Brito that “a transaction with InBev at this time would mean foregoing the greater value obtainable from Anheuser-Busch’s strategic growth plan. We are convinced that pursuing our program will enable Anheuser-Busch shareholders, rather than InBev shareholders, to realize the inherent value of Anheuser-Busch.”
Busch told Brito the two companies know each other well and have a close dialogue and relationship spanning joint agreements in the U.S., Canada and South Korea.
“As you say yourself, you dream big,” Busch told Brito. “We respect your desires to grow your company. But your growth should not come at the expense of our stockholders.”
InBev was reviewing the Anheuser-Busch statement Thursday afternoon and declined to comment immediately, spokesman Steve Lipin said.
Anheuser-Busch’s response will not soften InBev’s resolve to take over America’s biggest brewer, according to B. Craig Hutson, a senior bond analyst at Gimme Credit.
“InBev’s not going to throw in the towel,” he said in an interview. “This just strengthens their resolve to go directly to shareholders.” Anheuser-Busch’s position does not address the company’s “fundamental lack of top-line growth prospect,” Standard & Poor’s analyst Esther Kwon wrote after the company’s announcement. She said the rebuttal was unlikely to deter InBev’s interest, and that a “reasonable probability” remains of the deal being completed at $65 per share.
Anheuser-Busch said its board had “thoroughly studied” the proposal with independent financial and legal advisers on multiple occasions in the past two weeks. Also, the board’s independent directors met alone to examine the proposal. The company will host a conference call at 7:30 tomorrow morning to discuss InBev’s proposal, and its own plan for “accelerated” earnings growth.
Although responding to InBev after two weeks takes a bit of pressure off Anheuser-Busch, the company is “going to have to get more specific on their plan to generate value for shareholders,” said Edward Jones analyst Jack Russo.
“You knew InBev was not going away,” he said, adding that InBev is probably prepared to raise its bid price.
InBev made the unsolicited, all-cash offer for Anheuser-Busch — amounting to $47.5 million paid to A-B shareholders, not counting the assumption of about $9 billion in debt — in a June 11 letter to Busch. The bid followed a June 2 private meeting between Busch and two of InBev’s biggest shareholders in Tampa, Fla.
The offer followed weeks of speculation about InBev’s desire to buy Anheuser-Busch to form one of the world’s biggest consumer products companies. In fact, rumors about a possible combination have swirled for a couple of years as Anheuser-Busch’s stock price has languished and rivals SABMiller and Molson Coors, the No. 2 and No. 3 U.S. brewers, teamed up.
Anheuser-Busch responded to InBev’s letter immediately, saying its board of directors would “evaluate the proposal carefully and in the context of all relevant factors,” including the company’s long-term strategy. The Anheuser-Busch board met June 20 in St. Louis, but didn’t make a public decision then regarding the offer.
A takeover would give InBev about a quarter of the world’s beer market and a company larger than London-based SABMiller. A combination would combine Anheuser’s dominance in the large but slow-growing U.S. market with InBev’s strong position in faster-growing international markets, such as Russia.
In recent weeks, a number of Anheuser-Busch shareholders said InBev’s offer was enticing. Others believe that InBev increases the bid to $67 or $68 a share could be enough to sway a majority of shareholders if InBev takes the offer straight to shareholders.
A sale would end Anheuser’s 156-year run as an independent company and cede control of one of America’s most iconic brands, Budweiser, to a foreign-based company.
In launching the takeover effort this month, InBev said it envisions keeping St. Louis as the headquarters for the company’s North American region, keeping all of Anheuser’s 12 U.S. breweries running and renaming the combined company “to evoke Anheuser-Busch’s heritage.”
InBev Chief Executive Carlos Brito met recently with Missouri Sen. Claire McCaskill and other Missouri lawmakers to assuage fears over what a takeover would mean for the company’s St. Louis operations and employees. McCaskill, a Democrat, and Sen. Kit Bond, R-Mo., have both opposed the deal, even though they may ultimately have no say in the matter.
The beer industry has undergone a wave of consolidation in recent years as brewers seek efficiencies and bigger scale. In 2002, South African Breweries bought Miller Brewing Co. Molson, a Canadian company, merged with the Adolph Coors Co. in 2005. SABMiller is merging its U.S. operations with those of Molson Coors.
Meanwhile, Anheuser has avoided megamergers, instead taking smaller stakes in foreign brewers to get a foothold in faster-growing markets.
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