Commentary: Give Anheuser-Busch its due | St. Louis Public Radio

Commentary: Give Anheuser-Busch its due

Jun 13, 2008

This article first appeared in the St. Louis Beacon: June 13, 2008 - We expect a lot from the Anheuser-Busch companies and the family that runs this most iconic of St. Louis empires. They have alot of money and alot of power. Perhaps out of envy or perhaps because they sometimes deserve it, we don't always say nice things about them.

Now we are learning that the powerful may not be all-powerful and that there is a more human side to the story. Moreover, we as a city are a bit in shock. We are learning that this seemingly immutable institution may not be immutable after all - that we may lose something very big that we have forever taken for granted. And it is to be hoped that the question may not be what do the Busches and their brewery owe to us but what do we - the myriad families, Busch relatives or not, and institutions that comprise our town - owe to them.

Andy Dolan, a member of another venerable St. Louis family (the myriad real estate Dolans) works with me on landscaping projects (a second career for both of us). When I told him I was writing this piece, the first words out of Andy's mouth were a gravelly "chomping on a braunschweiger and onion sandwich." He was reminiscing about Gussie Busch and Whitey Herzog. We all have such memories.

I have met a few of the LN (last name) Busches but can say I know only one, Adolphus IV, and him not well. But I like him. And I admire the hard work August IV and his father have put into the splendid institution they lead and their understanding of its worth, as illuminated by the Wall Street Journal's fine May 26 story about August IV.

The Busches know, I believe, that they work not only or primarily for the future of the Busch family, but for A-B's employees, its shareholders (my wife, for one), and the communities of which A-B is a part. Their deep understanding and their sometime family travails are the human side of the story.

As to the NLN (not-last-name) Busches, who are legion in this town, I find them not so different from any old family of the "Lion of the Valley," as a fine local historian once called this city. They are solid St. Louisans. Now that a bid has come in from InBev, I hope they will stand together and with the brewery and its home city.

Now some thoughts on the stock, beginning with another personal story. Thinking like a lawyer, one of the first things I did when I heard about InBev was to hunt down my "basis book." This small loose-leaf notebook kept by my father (along with a handful of stocks) was handed over to me when I reached 21. The stock was just enough in 1968 to collateralize the loan for the 25 percent downpayment on the Kirkwood house with the screen porch on which I sit as I write this.

I will simplify somewhat but here's what I found. It turns out that my vast position in A-B (since given to my wife) was purchased for me by my grandfather in 1952 when I was 10 years old: All of 10 shares at $22 per share. I sold slightly more than half in 1974 - the worst year for the market since the depression - for $1,577 (not smart.) My wife now has 600 shares. Had the entire $220 investment been retained it would now be in the $50,000 to $75,000 range, even without the InBev pop.

Another thing I did right away was to hunt down the A-B annual report. (Unlike, I suspect, most investors in this slipshod age, I keep the reports that come in for the companies we own and actually read them.) Here are some facts and figures from the '07 report and a few conclusions derived therefrom.

Yes, domestic growth has been at a snail's pace. What else might we shareholders have expected once the company reached its longstanding goal of (approximately) half of the U.S. beer market? Perhaps with greater fairness the company has been faulted for not being more aggressive internationally. But given the Fed's policy in recent years of trashing the dollar, A-B, unlike InBev, hasn't been in much of a position to go on an international shopping spree.

Moreover, what A-B has done internationally hasn't been all that shabby. Its focus has been chiefly on two markets: Mexico and China. In the former, it owns 50 percent of Grupo Modelo, which in turn has 56 percent of the Mexican beer market. The latter company's Corona is now the fifth largest beer brand in the world and A-B's original $1.6 billion investment in Modelo has a market value of about $10 billion.

In China, the process is less far along, A-B having been there for only a dozen years. But A-B's longterm strategy there appears quite sound, with stakes in two of China's premier brewers. And Budweiser is already the leading super-premium beer in that huge and fast-growing market.

Since 1999, A-B's international profits have grown at an average rate of 20 percent a year. By my (conservative) calculation, they now constitute over 26 percent of total company net income. And the Modelo stake alone is worth more than 20 percent of what InBev is offering for the whole of A-B: Clydesdales, theme parks and all.

True, A-B's stock has underperformed the general market over the past five years. But it has outperformed over the past 20 years and quite handsomely over the past 10 years. It can be counted on to outperform in a bad economy. And this is a company with a truly longterm view. I fully expect that within a generation Budweiser will have the same dominant position in the world market it has today in the U.S.

So this family, for one, is not interested in InBev's cash. We are longterm investors and would prefer to pass on my grandfather's $100 investment on my behalf to our grandchildren.

High McPheeters, a lawyer, lives in Kirkwood.