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Hostile InBev takeover could play out in the mail

anheuser busch eagle.  300 pixels. 2008
Tom Nagel | St. Louis Beacon archive

This article first appeared in the St. Louis Beacon: July 10, 2008 - The next big winner in the battle between Anheuser-Busch and InBev could be the Postal Service. Phone companies and express-mail companies could do nicely, too.

It all depends on how long the companies continue to call each other's increasingly expensive bluffs based on Anheuser-Busch's recent rejection of the Belgian brewer's $65-a-share takeover offer, which InBev still touts as friendly.

If they keep fighting, InBev could soon launch a mass mailing to Anheuser-Busch shareholders asking them to depose board members in a rare election called a consent solicitation.

InBev needs a majority vote. It wants shareholders to take three actions: repeal any changes in Anheuser-Busch's bylaws made after June 26; approve the written consent process resulting in the board members' removal and choose replacement directors named by InBev.

In response, Anheuser-Busch will fire off a consent revocation, asking shareholders to support the hometown company's directors and/or revoke their pro-InBev responses.

To get an idea of the potential onslaught of mail, check the Securities and Exchange Commission's website (www.sec.gov ). InBev's preliminary kick-out-the-board document is 36 pages. The preliminary reply from Anheuser-Busch is 99 pages.

Shareholders beware: Each mailing will contain a different color postcard for your vote. If you don't sign, you may get another mailing from both sides. You can even vote by phone or internet.

The mailings won't start until the companies file definitive applications with the SEC, which must approve the documents to set the combat in motion. The SEC is basically a referee as it makes sure the applications follow the rules and voting process is run properly.

Consent solicitations "are pretty rare," says Lawrence A. Hamermesh, director of the Institute of Delaware Corporate and Business law at Widener University's School of Law in Wilmington, Del.

He says a "good majority" of publicly held companies incorporated in Delaware have certificates of incorporation that prohibit the use of consent solicitations as a takeover defense strategy. "They are extremely unpredictable and they are very confusing," Hamermesh says.

Anheuser-Busch, which is incorporated in Delaware, lacks other built-in defenses traditionally used by corporations: It doesn't have two sets of stock, a device that enables family-owned business to control voting power; it has eliminated as "poison pill" plan that dilutes shares of unwanted suitors; and it has cancelled its practice of electing board members to staggered terms.

Board Games

The board-election process remains a point of contention between InBev and Anheuser-Busch. Even if the SEC would give InBev the go-ahead for its consent solicitation, Hamermesh says, "as a matter a prudence," InBev probably will wait for a ruling by the Delaware Chancery Court, which adjudicates corporate issues.

The SEC and the court operate independently. "The SEC wouldn't necessarily wait for the Delaware court's ruling," he says.

Last month, InBev asked the court to determine if eight or all 13 Anheuser-Busch directors are subject to a consent solicitation. The uncertainty exists because Anheuser-Busch changed its bylaws several years ago to require that all directors stand for election each year.

Previously, some directors were elected for three-year terms in each of three succeeding years, thus ensuring that a majority would remain in control. Eight directors are part of the new system, including CEO August A. Busch IV, chairman Patrick Stokes and former chairman and CEO August A. Busch III. Five directors are in the final year of a three-year term under the old system.

InBev believes the new bylaws affect at least eight and probably 13 board members; but it wants the court's endorsement. Anheuser-Busch says the court should prevent all board members from being subject to a consent solicitation.

"We are reviewing the pleadings filed in Delaware and remain fully committed to challenging InBev's claims that any or all of our directors can be removed without cause," Gary Rutledge, vice president for legal and government affairs at Anheuser-Busch, said on July 9.

"I'd be really surprised if they [InBev] lost on the eight directors, and I think they have the best of the arguments on the other five," Hamermesh says.

InBev has asked the Delaware court for an accelerated review and decision, and the company seems inclined to wait. The court hasn't set a trial date. "This is a pretty narrow issue," Hamermesh says. "I think it could be decided in a week."

Either party could appeal to the Delaware State Supreme Court. Anheuser-Busch also has filed a federal court suit in Missouri, alleging InBev's consent statement "and actions taken prior to its filing violate U.S. securities laws."

If InBev loses in Delaware, it could wait until Anheuser-Busch's next annual meeting and try to replace the board with its own slate of directors. But how patient is InBev? And how patient are its financial backers - the banks that are willing to lend at least $40 billion to finance a takeover?

Waiting Game

InBev also could try a stock-tender offer, another formal mass mailing in which it seeks a commitment from Anheuser-Busch shareholders to hand over their stock for $65 a share. If a majority agrees, InBev controls the company.

The value of InBev's offer is $46.4 billion, and some analysts say all of the legal charges, regulatory filings and public-relations ploys could simply come down to a decision by InBev to raise its bid. However, InBev says its offer is firm.

Anheuser-Busch says InBev undervalues the company. It recently unveiled a package of stock-boosting moves such as cutting 10 percent to 15 percent of 8,600 salaried workers, reducing manufacturing costs, raising beer prices and repurchasing shares. It says it can reach $65 a share as an independent company, but it didn't set a timetable.

If the consent solicitation and consent revocation fight proceeds, it's hard to predict a timetable, partly because we don't know how much behind-the-scenes work is being done by both parties. In theory, the fight could end "in a few days" if InBev can claim a majority of the Anheuser-Busch shares, says Hamermesh. "It doesn't go quite that fast," he adds.

Technically, InBev has 60 days to round up enough votes from the day it formally discloses its first consent to Anheuser-Busch; but it doesn't have to disclose consents as fast as it receives them. Consents also can be revoked.

As of March 31, the 10 largest shareholders - mostly big banks and mutual fund companies - held just under 28 percent, according to Vickers Stock Research. The St. Louis company's directors and officers, including August A. Busch IV and August A. Busch III, own about 4.3 percent, according to the company's latest SEC filing.

Robert W. Steyer, a freelance journalist living in New York, was a business reporter for the St. Louis Post-Dispatch. 

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