This Bud May Be for the Belgians

Why Anheuser-Busch may well accept the $46 billion offer from Europe's InBev to buy the St. Louis brewing giant

By David Kiley

After weeks of mulling an offer for Anheuser-Busch (BUD), Belgian brewer and soft drinks giant InBev made an unsolicited offer to acquire the U.S. parent company of Budweiser beer for $65 a share, or $46 billion. The St. Louis brewer reported on June 11, after the close of trading on the New York Stock Exchange, that it had received the bid.

The offer represents an 11% gain on Wednesday's close of 58.35 and a 42% premium over the stock's 52-week low of 45.55. (That low was set, oddly enough, on Mar. 17, St. Patrick's Day, second only to the Super Bowl as the biggest beer-drinking day in the U.S.) The offer is about a 24% increase over where shares were trading just before InBev's interest surfaced last month. Shares of Anheuser rose 7% in after-hours trading on Wednesday.

Anheuser said in a statement that its board would "evaluate the proposal carefully and in the context of all relevant factors, including Anheuser-Busch's long-term strategic plan." But management, led by CEO August Busch IV, has signaled for weeks that it opposes a takeover.

InBev's Uneasy Funding Package

InBev, the world's largest brewer, which owns Becks, Stella Artois, and Labatts among other brands, was formed from the 2004 merger of Belgium's Interbrew with Brazil's AmBev. InBev's sales last year were 30.6 billion euros ($47.6 billion). Anheuser's sales last year were $17 billion. InBev has just a marginal presence in the U.S. but a mature business in Western Europe. The company has been working on arranging a $50 billion-plus funding package from banks to finance the proposed deal, which has been difficult as major financial institutions have been reeling from investments in the subprime mortgage meltdown.

The Busch family, while certainly influential, does not own enough stock—less than 4%—to block a takeover. And investors have said that a fair bid from InBev should be taken seriously. "I don't think $65 is a bad price because if the company stayed the way it is now, it certainly would be, on average, two years before the stock reaches that level on a sustained basis," says Stephen Jarislowsky, chairman and CEO of Canada's Jarislowsky, Fraser, which owned 1.7 million Anheuser shares as of Mar. 31. "A takeover would expand the globalization of their franchise, and we like that," says Duncan Richardson, chief equity investment officer at Eaton Vance (EV), the 10th-largest Anheuser shareholder, with 5.5 million shares.

And even members of the family do not seem to be standing squarely behind the CEO. Adolphus A. Busch IV, an uncle of the company's current CEO, said in a recent statement that a merger is "not a family issue…nor is it a matter of family solidarity or legacy. It is strictly a matter of shareholder value…It is no secret that the sluggish performance of the stock is a concern."

Critics of Anheuser-Busch's performance in recent years point to a culture that needs to be shaken up—one that is perhaps still too focused around the idea of a family-run business.

Blue-Collar Blues

Anheuser's U.S. market share is under 50%, down from 52% in 2002, which was longtime CEO August Busch III's last year as chief executive of the company. He had built it up from 23% in 1975, according to Impact Databank. Anheuser-Busch is bedeviled by the gradual shift away from blue-collar beer like Budweiser by baby boomers and Gen Xers. Sales of wine, spirits, and small-batch craft beers have all been climbing, while Budweiser's business slips. And the company has not been sufficiently invested overseas to take advantage of developing markets to the degree that SABMiller and InBev have done.