Posted by: Ben Steverman on June 12, 2008
This $46 billion deal, if it happens, is a vote of confidence in the U.S. economy, a good sign of the health of the credit markets, and yet more evidence that the M&A market is waking up from the dead.
Maybe I was overstating things a bit, but this deal does seem like a bullish sign (—amid plenty of other bearish news out there.) Here’s why:
1. This is reportedly the biggest all-cash buyout ever. That’s impressive during a credit crunch. According to last month’s reports, InBev had already obtained $50 billion in financing from two banks. Of course, beer is such a stable business that even most conservative bankers would probably feel comfortable they’re getting their money back. Still, the apparently easy access to $50 billion is a sign that credit conditions are still fair, if not good or great, for credit-worthy borrowers.
2. Finally we are seeing foreign buyers take advantage of the weak U.S. dollar to buy up U.S. assets. Patriotic Americans might object to foreign ownership of the “King of Beers.” But infusions of foreign money into the U.S. stock market are a positive sign for equity investors here.
However, my bullishness is muted a bit by the reality that this is in many ways a unique deal. InBev’s interest is in small part a vote of confidence in the U.S. economy (because Anheuser is so strong in its home market), but it’s mostly a vote of confidence in Budweiser, Bud Lite and Anheuser’s other brand names. Other U.S. companies might not have the same appeal to foreign investors.
There are other things to worry about: The deal’s prospects are still uncertain, with members of the Busch family including the CEO, reportedly opposed. An even higher bid might push Anheuser’s board toward a deal, but there are dangers here: An expensive buyout could force Inbev to wring more cost savings out of Anheuser. No, InBev won’t (as one colleague joked this morning) send the Clydesdales to the glue factory, but the demands of a heavy debt load could tarnish the very prize that InBev is trying to win.