InBev says A-B deal will be complete by year's end, as planned | St. Louis Public Radio

InBev says A-B deal will be complete by year's end, as planned

Nov 6, 2008

This article first appeared in the St. Louis Beacon: November 6, 2008 - Despite a shaky economy, executives of Belgian brewer InBev say they remain unshaken in their belief that the acquisition of Anheuser-Busch will proceed on schedule and be completed by year-end.

InBev CEO Carlos Brito told analysts Thursday his company is "well prepared and equipped for the challenging economic environment."

Amid tightening credit markets, a sinking InBev stock and a worldwide economic crisis, the deal still needs approval by Anheuser-Busch shareholders and by U.S. and some foreign antitrust regulators. The shareholder vote takes place Nov. 12 for InBev's $70-a-share offer.

Separately, the Teamsters union reported Thursday that its members had endorsed "by an overwhelming majority" a new five-year contract with Anheuser-Busch to replace the one that expires at the end of February. The union represents more than 6.500 workers.

Also on Thursday, the St. Louis Post-Dispatch reported that eight top Anheuser-Busch executives will be leaving when the acquisition is complete. (Earlier, A-B had announced enhanced retirement for executives over a certain age with certain service.)

Once InBev put one of their own at the top North American leadership, with David Peacock as second in command, there should have been little doubt that a number of managers would depart. Peacock is currently vice president of marketing for Anheuser-Busch. When the deal closes, he will become president of Anheuser-Busch, serving under Luiz Fernando Edmond, an InBev executive who will be Zone President North America.

The key financial elements of InBev's takeover are $45 billion in loans to the Belgian brewer from 19 international banks; InBev's ability to issue $9.8 billion in equity; and InBev's desire to quickly sell $7 billion in "non-core" assets after its completes the takeover.

Felipe Dutra, InBev's chief financial officer, told analysts Thursday, during a telephone conference call, that he "firmly" believes the takeover will be completed based on the original conditions.

Brito said InBev has a "firm commitment" from the 19 banks. A company press release said InBev is "committed to maintaining an investment grade credit rating."

SELLING ASSETS

Declining to identify non-core assets, Brito said he has a list of five -- from InBev and Anheuser-Busch -- that are receiving inquiries from prospective buyers. He said two or three assets could enable InBev to reach the $7 billion mark to pay down debt. He expects the divestitures to happen within 12 months of the deal's closing.

Many analysts predict InBev will sell Anheuser-Busch's theme parks division and/or its packaging division. The question is whether InBev can get an acceptable price in a declining economy.

Last month, InBev postponed an equity offering, citing adverse market conditions. "As a consequence of unprecedented volatility in the global capital markets, our board decided to postpone our previously announced capital increase until market conditions stabilize," InBev said Thursday.

This decision "will have no impact on the timing of closing" the deal with Anheuser-Busch, InBev said. It has secured a bridge loan to cover the planned equity offering for six months starting when the deal is consummated.

Brito also repeated yet again that a dispute between Anheuser-Busch and Mexico's Grupo Modelo won't affect the takeover. Although InBev is talking to the Mexican brewer and would "love" to have it as a partner, Grupo Modelo has "no say" in InBev's takeover bid.

Grupo Modelo has filed an arbitration claim against Anheuser-Busch based on an agreement between the two companies in which the St. Louis brewer owns 50.2 percent of the Mexican company but lacks operational control.

Grupo Modelo says it wasn't consulted on the deal, arguing that Anheuser-Busch can't transfer or sell its stake in the Mexican brewer "to a competitor in the beer business." Grupo Modelo says Anheuser-Busch must give the Mexican company's controlling shareholders an opportunity to buy back the shares. Anheuser-Busch is contesting this claim.

LAST CALL

InBev executives made their comments Thursday as their company issued third-quarter financial results. Anheuser-Busch also released July-September results, although it said little about the takeover.

For Anheuser-Busch's final quarterly report, W. Randolph Baker, the chief financial officer, announced the results during a telephone conference call with analysts. August A. Busch IV, the CEO, didn't attend.

"Our first impression is that Anheuser-Busch's third-quarter results were nothing short of outstanding," said Ann Gilpin, an analyst for the independent financial research firm Morningstar, in a Thursday research note.

"Had the firm initiated its cost-saving program and invested in new product launches years ago, its share price may have reflected this progress, thus preventing InBev the opportunity to take over the company," she added.

Excluding one-time charges and gains, Anheuser-Busch earned $1.05 a share, one penny better than the consensus of analysts polled by Thomson Reuters.

Anheuser-Busch had telegraphed the prospects for a good quarter when it announced in early October that U.S. beer shipments enjoyed good growth and that price increases were having the desired effect.

The company also recorded a one-time pre-tax charge of $166.2 million for "outside professional services" related to the InBev deal and for costs associated with employee severance.

Including all one-time events, the company earned $666 million, or 90 cents a share, on net sales of $4.92 billion. For the July-September 2007 period, it earned $707 million, or 95 cents a share, on net sales of $4.62 billion.

In late trading Thursday, Anheuser-Busch's stock was at $64.60, a reasonable vicinity of InBev's $70-a-share offer. Last month, the stock spent several days below $60 and fell as low as $56.20.

Investor nervousness about InBev takeover financing and the economy's plunge in recent weeks depressed Anheuser-Busch's stock. However, those who took a chance on the stock at the unusually low levels stand to make a quick and substantial profit as long as the takeover is completed on time.

InBev's stock, however, is another matter. On Thursday, the stock, which isn't traded on a U.S. exchange, closed at 30.40 euros, which is equivalent to $38.73. Thursday's price represents a more than 50 percent decline over the past 12 months.

Robert W. Steyer is a business journalist in New York.