Anheuser-Busch Fights for Time

To thwart a possible buyout by Belgian brewing giant InBev, Anheuser has adopted a full range of stalling tactics

by David Kiley

The strategy Anheuser-Bush (BUD) is adopting to thwart a takeover by Belgian brewing giant InBev (INTB) will seem familiar to college basketball fans. It's out of the playbook written by former University of North Carolina basketball coaching legend Dean Smith, and it's called four corners.

For those whose knowledge of college basketball goes back only as far as the shot clock, the strategy was to tie up the ball for long periods by passing it back and forth between four players. Back in the day, with the right players, the stalling tactic was quite effective in confounding the opponent (and putting the crowd to sleep).

The delay, in this case, is clear: St. Louis-based Anheuser-Busch has held off meeting with InBev to discuss the European company's $46 billion offer. Meanwhile, the two brewing giants have furiously traded press releases, advertisements, and lawsuits as if they were political candidates battling a disputed election.

Paper War

On July 9, Anheuser-Busch urged its shareholders by mail and press release to withhold their consent from InBev. On July 7, InBev had filed documents with the Securities & Exchange Commission seeking to get Anheuser-Busch shareholder backing for a new slate of directors. On July 8, Anheuser-Busch also filed suit against InBev in a Missouri court, charging that InBev has misled investors about the security of the company's proposed financing of the takeover.

The brewer of Budweiser is even alleging that InBev's business interests in Cuba should disqualify it from buying Anheuser-Busch, since U.S. companies are restricted from doing business there.

And so it is likely to go. Analysts and academics who follow corporate takeovers say that while InBev's offer of $65 per share for Anheuser-Busch appears fully valued, the brewer's tactics are likely to result either in InBev raising its bid or putting it off entirely.

The Belgian company, which markets the Stella Artois brand among others, may even be forced into the friendlier arms of Anheuser-Busch rival SABMiller. If Anheuser-Busch is successful in blocking InBev, the Belgian company will still be revved up to make a deal. According to one beer industry consultant who has worked for both Anheuser-Busch and InBev, SABMiller has already informally communicated to InBev that it would be happy to sit down and discuss a merger. The South African-based SABMiller has, according to one Wall Street analyst, also been "talking informally" with Molson Coors Brewing (TAP).

The Busch Family's Turf

Even before InBev showed interest, Anheuser-Busch had seen its share of the U.S. beer market slide—from 52% in 2002 to slightly less than 50% today—and its share price stagnate. The company has been stung by shifting tastes of beer drinkers toward more premium beer, wine, and spirits.

But Anheuser-Busch CEO August Busch IV and his father, August Busch III, do not intend sell the company started by their family in the 19th century. And especially not to InBev CEO Carlos Brito, whom they view as a hatchet-wielding cost-cutter who will strip the company and relegate the Busch family to shareholders rather than managers.

With its tactics against InBev, Anheuser-Busch is sending the message that either its offer price has to be higher to entice the Busch family (which owns just under 4% of the company) or it has to be prepared to "go hostile," says Michael Roberto, professor of management at Bryant University in Smithfield, R.I. He adds: "Going hostile makes it much more difficult to integrate the two companies after the deal is over, and that doesn't sit well with financiers."

Indeed, the details of the lawsuit filed by Anheuser-Busch in Federal District Court in St. Louis seem to indicate its executives believe they have identified weak points that can be exploited against a hostile takeover.

Unfriendly Credit Markets?

For one, Anheuser-Busch claims the Belgian rival used an "illegal plan and scheme…through a course of deceptive conduct, to acquire control of Anheuser-Busch at a bargain price that does not adequately compensate shareholders for their investment in the company." Anheuser-Busch asked the court to block the Belgian giant from taking any further actions "until such time as it has cured each and all of its false and misleading statements." Anheuser-Busch said in the complaint that the so-called deceptive effort began when InBev launched "a campaign of acquisition rumors" in May "through the dissemination of false and/or misleading statements."