July 10, 2008

Anheuser-Busch: Threatens to Sue InBev Over Takeover Bid

InBev's attempted acquisition of Anheuser-Busch has hit another setback. The American beer giant has now threatened to sue its European rival over its "illegal scheme", which it says undervalues Anheuser-Busch. As the brewing industry moves toward consolidation, legal challenges may be the only recourse to stop a few major players from dominating.

In late June 2008, European headquartered brewer InBev announced its intention to acquire US rival Anheuser-Busch (A-B), Recent years have seen many similar moves, although not on this scale, as brewing companies seek to boost profitability through merger and acquisition activity, in order to leverage economies of scale in marketing and distribution. Such activity is seen by many industry players as essential to cope with either stalling or falling demand, as consumers in many traditional beer-drinking countries increasingly moderate their drinking, and switch to wine and spirits.

The attempted move by InBev mirrors the recent activity in Europe involving Scottish & Newcastle (S&N). In that case, S&N resorted to petitioning to sue its corporate raider Carlsberg, which had been its former joint venture partner in Baltic Beverages Holdings. Now A-B has threatened to take the same course of action, claiming that InBev's actions comprise "an illegal scheme", focusing on the offer of $46 billion, which drastically undervalues the company.

A-B claims that InBev lacks the necessary financing to complete the deal and that its operations in Cuba threaten to further complicate the matter, as US companies are, in most cases, barred from doing business in Cuba. However, InBev has stated that its Cuban operations are small and, moreover, are handled entirely from Europe.

While the 2007 market capitalization of InBev amounted to E35 billion (around $55 billion), making it a sizeable industry player, it is doubtful that InBev could secure the necessary financing to complete the acquisition in a constrained credit market. It is possible that the offer is a portent of another strategic move by InBev in the future.

With A-B enjoying a more than 50% share of the US beer market by volume, any acquisition or merger of these two brewing giants would inevitably lead to major anti-trust issues. Indeed, legal challenges may be the only obstacle to such activity throughout the sector, as brewers seek synergies to bolster their bottom lines.