The rumors are true. One of the most poorly kept takeover secrets in recent times is officially out of the bag: Behemoth international brewer InBev has officially bid $65 per share for Anheuser-Busch (NYSE: BUD ) , valuing the fiercely independent American brewer just shy of $50 billion.
The next big takeover battle?
I don’t think this is welcome news to Anheuser-Busch on any front, but it's a great move by InBev. Anheuser-Busch shares have been stagnant over the past five years, and A-B shareholders have little reason to expect anything different over the coming years. Sales of the company’s flagship brands, Budweiser, Michelob, and Busch, are dead in the water, and there’s no reason to think that sales will perk up any time soon. This fact has certainly not been missed by the company’s current shareholder base.
With the Busch family holding less than 5% of the company, and without any sort of dual-share class to ensure control in the face of such a bid, there are no automatic or embedded impediments to a deal. The only thing standing between InBev and a successful bid for Anheuser-Busch is the A-B board, which now faces a mighty task to ensure that CEO August Busch IV does not turn into this month’s Jerry Yang, whose travails trying to keep Yahoo! (Nasdaq: YHOO ) independent of Microsoft (Nasdaq: MSFT ) , at least at publicly offered prices, are well-documented.
Goodbye to the red, white, and blue
From an Anheuser-Busch shareholder’s perspective, it is almost a no-brainer to take the money and run. Anheuser-Busch’s business-as-usual approach is unlikely to yield significant stock appreciation in the near future, and the heights of $65 per share will not be reached by organic means anytime soon. With the costs of raw materials increasing and the company’s flagship brands likely to remain stagnant indefinitely, I see no catalyst for the company’s shares to reach that level on their own.
From a purely competitive perspective, though, this does not mean the deal makes sense for Anheuser-Busch. The company has long glorified itself as standing for everything -- and, at times, anything -- American. Foreign ownership would almost certainly damage the core image of the company’s brands, which are far and away the most valuable part of the company. This could open the door for a pure-play American company to make the case that it is the true American brewer. With the recent Miller-Coors (NYSE: TAP ) combination, and each underlying company already having foreign ties, this would open a yawning chasm for a pure American brewer to appeal to the NASCAR set. Boston Beer (NYSE: SAM ) , I’m looking in your direction.
Creating the world’s beer powerhouse
So why is InBev interested in a company with stagnant domestic sales? Because this would cement InBev as the dominant international brewer, and there would be precious little that SABMiller or anyone else could do to even approach InBev’s international bulk in terms of sales or volume.
Brewing beer is a scale business, and though direct synergies might be initially lacking, the long-term positioning of the company as the undisputed international king of brewers would be a compelling case for many investors. InBev could use its international distribution network to peddle its brands around the world, capitalizing on economies of scale internationally in a way that the world has not yet seen. Slight declines in domestic volume would be negligible in such a context.
Your move, A-B
The ball is in the Anheuser-Busch board’s court, and I can almost guarantee that opposition will be fierce. While any board worth its salt will reject the first takeover offer, A-B will likely be defending any decision not to sell on emotional and patriotic grounds rather than more substantive financial reasoning. The company will have a tough time defending a valuation north of the InBev offer, though it will likely invoke its positions in Grupo Modelo and in the Chinese beer market, which includes a minority interest in market leader Tsingtao, as being grossly undervalued by the offer.
With A-B shareholders, and maybe even a salivating Carl Icahn, watching from the wings, it is difficult for me to imagine a scenario in which Anheuser-Busch will remain independent. The takeout price will likely be above the current offer, but for my money, not by much. The gates for an American-owned, mass-produced lager will likely soon be opened. I have my homebrew carboys working overtime as I write this.
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