Anheuser-Busch Puts Negotiations on Tap

In exchange for a hefty potential price, Inbev has finally lured Anheuser-Busch (NYSE: BUD  ) to the negotiating table. The Belgian company upped its offer to $70 per share, or about $50 billion for the entire company, bringing a deal I consider all but inevitable that much closer to reality.

While I still think that A-B's management hasn't welcomed Inbev's courtship, the planets seem to be aligning for a deal to be consummated. By upping its offer, Inbev has increased the premium paid to Anheuser-Busch shareholders to more than 33%, compared to the closing price before news of Inbev's offer was leaked. Perhaps more importantly, InBev also made Anheuser-Busch's management team and board look as though they are earning their keep. After all, what board in their right mind would have accepted the first offer?

A negotiated sale certainly seems to be in the best interest of everyone involved at this point. The legal wrangling from both sides had already begun; Inbev has been trying to force a shareholder vote aimed at replacing the current board with a highly pro-Inbev slate. Anheuser-Busch, meanwhile, has questioned the veracity of Inbev's statements regarding the availability of financing for the deal, and pointed out that Inbev owns a Cuban brewer, which they claim would be a legal issue, given the American trade embargo levied against the country.

Just a few days ago, it seemed that these legal issues could drag the process out for weeks. That could make a hostile bid by Inbev costly to both firms, in terms of managerial attention, general uncertainty regarding each company's future, and the legal expenses themselves. A-B's facing particularly difficult challenges at present, as Molson Coors (NYSE: TAP  ) and SABMiller (OTC: SBMRY) officially combined their U.S. operations just days ago to form MillerCoors, a national competitor on a scale that Anheuser-Busch has not seen for decades.

If a deal will be consummated (and I think it will), I bet it'll happen quickly. The A-B board can say that they held out for a better price -- anything above $70 will make them look particularly good -- and Inbev will gain a big leg up on their competition with SABMiller to be the true international king of beers. By negotiating, the A-B board will also continue to have some voice in the structuring of the deal, the treatment of its employees, and any potential asset sales.

A fascinating sideline player in the deal so far has been Warren Buffett, who controls about 5% of Anheuser-Busch through Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) . To this point, Buffett's silence on the proposed transaction has been deafening. Venerated by many as essentially the Pope of value investing, words of support for an Inbev bid would almost certainly seal the deal; similarly, his opposition could sabotage the bid. I suspect he'll be toasting the creation of InBudBev, InBud, or Anheuser-Busch Inbev (the name I think the A-B board will insist on), within the next couple of weeks.

Catch up on Anheuser Busch:

The Motley Fool's newsletters are available for free 30-day trials, but contain very few Clydesdale grooming tips. For now. Anheuser Busch is a former Inside Value selection. Berkshire Hathaway is an Inside Value recommendation, a Stock Advisor recommendation and the Fool owns shares of it. SABMiller was picked by Global Gains.

Fool contributor Matthew Reilly owns shares of Berkshire Hathaway, but has no religious affiliation with Warren Buffett. The Fool's disclosure policy tastes as great as its name.

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10/24/2016 11:54 AM
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Molson Coors Brewi… CAPS Rating: ***