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Economy & Business

A-B flies white flag; InBev's sweetened offer sways the board

This article first appeared in the St. Louis Beacon, July 13, 2008 - InBev raised its offer and Anheuser-Busch raised a flag of truce, agreeing to a $70-a-share buyout. 

Shortly after 11 p.m., Anheuser-Busch announced it had agreed to terms with InBev.

A few minutes past midnight on Monday (EDT), the companies said their respective boards endorsed a deal that was $5 a share better than InBev’s initial proposal made four weeks ago. Anheuser-Busch said the first offer was inadequate.

The merged company will be called Anheuser-Busch InBev. All 12 Anheuser-Busch breweries will remain open, and St. Louis will serve as the North American headquarters. Executives completed the deal after negotiating from Friday through Sunday.

The deal, which must be approved by shareholders of both companies, raises the value to $52 billion from $46.4 billion. The companies hadn’t set shareholder-vote dates; although the InBev vote won’t be a surprise because its controlling shareholder supports the takeover.

“Everyone leaves the table sullen but not rebellious,” says Juli Niemann, executive vice president of the Clayton financial advisory firm Smith, Moore & Co. “InBev has more debt. Anheuser-Busch saves a little face and walks away richer.”

Among the deal’s highlights: August A. Busch IV, the Anheuser-Busch CEO will join the board of the new company, but he won’t have day-to-day management responsibilities; the merged company will sell “non-core assets,” but it didn’t identify them; the new company will build upon and expand Anheuser-Busch’s previously announced cost-cutting plan.

Speaking Monday at separate teleconferences to analysts and journalists, executives said they expect the deal to close by year-end and that they doubt there will be any “significant” antitrust issues.

The two companies “will be able to accomplish much more than each can do on its own,” said Carlos Brito, the InBev CEO, in announcing the agreement Monday. He will be CEO of the merged company.

August A. Busch IV and one other St. Louis company representative will sit on the 14-member board of the new company. But this will be a non-executive board without daily management responsibilities, similar to InBev’s current board. Brito isn’t a member of the InBev board and he won’t be a member of the new company board.

When asked who would run the new company’s North American operations based in St. Louis, Brito said this and other top jobs had yet to be determined.

Busch was asked at the press conference if his company could have done anything different in the past to protect against being taken over. He deflected the question, saying his goal is to do the best for his shareholders.

The deal “provides additional and certain value for Anheuser-Busch shareholders, while enhancing global market access for Budweiser,” Busch said.

In mid-day trading, Anheuser-Busch’s stock was up 53 cents, or 0.8 percent, to $67.03. Trading on the Brussels exchange, InBev’s stock lost 1.50 euros, or 3.4 percent, to 43 euros.

What's Next?

The takeover is clearly a blow to community pride in St. Louis. If it succeeds, it would represent the latest in a long line of businesses with family names - such McDonnell Douglas, Mallinckrodt and A.G. Edwards - to be acquired by outsiders.

However, InBev’s higher bid proved to be an offer Anheuser-Busch’s board couldn’t refuse for its shareholders, especially because the stock had been stagnant for five years prior to initial rumors of InBev’s interest in late May.

“Shareholders should be happy that the deal is all cash,” said analyst Ann Gilpin, of the independent financial research firm Morningstar, in a report Monday. Integrating the two companies will be difficult due to differing corporate cultures and the probability of “significant workforce reductions.” 

KEY Points

Specifics from the InBev-Anheuser Busch announcement:

  • The $52 billion deal will provide $70 per share in cash.
  • Both boards voted unanimously. Shareholders must vote before it becomes final.
  • No regulatory problems are anticipated and the deal is expected to become final by the end of 2008.
  • The new company, Anheuser-Busch Inbev, will be the global leader in beer sales and among the top 5 consumer product companies.
  • Carlos Brito will head the new company. A-B head August Busch IV and one current or former A-B board member will join the new board.
  • The company expects to achieve $1.5 billion in "cost synergies." 
  • All A-B breweries will remain open, and the company says it will remain committed to local communities.

August Busch IV, Anheuser-Busch president and CEO, stated, “Today’s announcement brings new opportunities for Anheuser-Busch and its business, brands and employees. This agreement provides additional and certain value for Anheuser-Busch shareholders, while enhancing global market access for Budweiser, one of America’s true iconic brands. We will leverage our collective strengths to create a truly diversified, global company to sustain long-term growth and profitability. In the United States and Canada, both InBev and Anheuser-Busch have seen significant benefits from our existing relationship and we look forward to replicating this success in other parts of the world.”

Carlos Brito, CEO of InBev, said, “We are very pleased to announce this historic transaction today, bringing together two great companies that share a rich history of brewing traditions. We are extremely excited about the opportunities that this combination will create for consumers worldwide, as well as our shareholders, employees, business partners and wholesalers. Together, Anheuser-Busch and InBev will be able to accomplish much more than each can on its own. We have been successful business partners for quite some time, and this is the natural next step for us in an increasingly competitive global environment. This combination will create a stronger, more competitive global company with an unrivaled worldwide brand portfolio and distribution network, with great potential for growth all over the world.”

The agreement comes after the companies had become increasingly hostile through lawsuits, regulatory filings and public-relation missiles aimed at each other. Anheuser-Busch assailed the first offer, citing its concerns for its shareholders and claiming it could achieve a $65 stock price while remaining independent.

InBev declared that its first offer was firm, and it threatened to ask shareholders to remove the Anheuser-Busch board.

“The process was at time difficult for all parties,” Busch told journalists. “The result was the right one. ... In the end, it was a friendly transaction.”

Brito declined to discuss cost-cutting details except to say that the combined company would use Anheuser-Busch’s late June plan as a base. In an effort to remain independent, it proposed a series of steps - layoffs of salaried workers, manufacturing efficiencies, beer-price increases and stock repurchases - to save $1 billion by 2010.

The cost-cutting plan, called Blue Ocean, was originally designed to trim $400 million in four years, but it became an expanded strategy to be implemented within three years.

“We will continue to support” Blue Ocean, said Brito, adding that he planned to cut $1.5 billion within three years. “Job creation comes along with business growth.”


The deal will create the world’s largest brewer in volume and sales, giving InBev access to the U.S. market where it has had a tiny presence primarily through Anheuser-Busch’s distributing of InBev beers like Beck’s and Stella Artois.

Although the U.S. beer market is slow-growing, Anheuser-Busch accounts for 48.5 percent of it. InBev says it can do a better job of bringing the signature Budweiser brands to a wider international audience.

The new company will control approximately 25 percent of the world’s beer volume, Gilpin said. Once the the new company pays down debt, sells assets, cuts costs and integrates cultures, it will be able to “outspend, outmarket and outsell any other beer company on the planet,” she said. 

InBev said Monday it has addressed one key financial issue: Its lenders have agreed to provide more money so the deal can be done. Originally, InBev said it would have to borrow at least $40 billion to finance the deal.

The lenders have agreed to provide $45 billion for the new deal, including $7 billion to finance the sale of “non-core assets” at InBev and Anheuser-Busch. These assets weren’t immediately identified, but analysts have speculated that Anheuser-Busch’s theme parks and packaging subsidiaries would be vulnerable.

“We have some ideas,” Brito said Monday.

The company also plans to issue up to $9.8 billion in equity to help pay for the deal, although InBev didn’t describe the type of financing or the timetable. It has received commitments for short-term borrowing to issue the equity.

“The combined company is expected to retain a strong investment-grade credit profile,” InBev and Anheuser-Busch said. Bond-rating firms had expressed concerns about InBev’s initial borrowing plan for $40 billion affecting the bonds of InBev and Anheuser-Busch. They hadn’t commented on the new deal.

Mexican Uncertainty

One uncertainty tossed into the agreement was a statement by Mexican brewer Grupo Modelo that it has the right “to decide whether or not to consent to the potential acquisition of Anheuser-Busch by InBev.”

Anheuser-Busch owns 50.2 percent of Grupo Modelo, but it has no operational control. Analysts have had mixed views about this company’s role in the deal - whether it has the right of first refusal to buy back its stake if there’s a change in control at Anheuser-Busch or whether it can influence a takeover of Anheuser-Busch.

Some analysts believe InBev’s acquiring of Anheuser-Busch simply means it become the new partner for Grupo Modelo. Others believe the relationship is more complex.

“Our agreement with Anheuser-Busch was carefully constructed to ensure we have a definitive say in who our partner is,” said Grupo Modelo, which is Mexico’s beer leader. “We have a great deal of respect for InBev and look forward to continuing our discussions with them and hope to find a resolution that meets the needs of both companies and their stakeholders.”

Ironically, Grupo Modelo had been seen by analysts as one way Anheuser-Busch might block a takeover by InBev. If the St. Louis company had acquired the Mexican company, the total price for the Belgian company could have been onerous.

“We admire them a lot,’ Brito said of the Mexican company. “We intend to work together to build this partnership [after Anheuser-Busch is acquired].”

Brito said there is no deadline for Grupo Modelo to act, and he declined to comment on whether InBev was thinking about buying all of Grupo Modelo or letting it buy back Anheuser-Busch’s stake.

Click here to read an official statement (PDF) which appears on the corporate Web sites of both InBev and Anheuser-Busch. 

Robert Steyer, New York, is a free-lance journalist who was a long-time Post-Dispatch reporter. 

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