KWMU/St. Louis on the Air recently hosted an hour long discussion on the debate surrounding Belgium Brewing Powerhouse InBev’s offer of $65.00 per share to buyout Anheuser-Busch (AB). The discussion included commentary from Bill Finnie, Adjunct Professor, Washington University School of Business, Senator Kit Bond (R - MO) and Congressman Russ Carnahan (D - MO).
Yes, the entire hour includes what is probably an appropriate level of American protectionism surrounding the King of Beers. However, it also covers the important role that AB plays in St. Louis and what side effects might stem from ownership by a foreign company.
Common consensus is that the AB board will reject the first InBev offer, along with developing whatever poison pills it can to protect itself and push for a higher bid. However it appears that AB is fairly defenseless from a takeover for two reasons:
Low family ownership of the common stock. As an example, Warren Buffet owns more of AB than the Busch Family. Also, there is a segment of the family who have little to do with the day to the day running of the company and support the buyout. Warren continues to sit on the sidelines but I would expect that he can not maintain a neutral position for long.
Poor stock performance over the last 5 years (13% return before dividends vs. 41% for the S&P Index - pre buyout announcement). The majority of AB’s shareholders are mutual funds, whose investments have lagged the market for some time. It would seem reasonable that should this deal not go through, we could see its share price fall back to the pre-announcement levels. This may be unacceptable to long term shareholders.
Beyond the risks to AB and St. Louis, there is also risk to InBev, who must finance the purchase of AB to the tune of 40 Billion Dollars. Yes, the Euro is strong right now, but that is still an impressive amount of debt to assume for the brewer. American backlash against Belgium ownership may also be an issue, cutting into future cash flows should beer drinkers in the US boycott AB/InBev products post deal. Would they move to Miller products? Probably not as SABMiller is a South African company. How about Coors? Again, maybe not after their merger with Canada’s Molson. If anything, it may be an oportunity for US craft brewers, especially if states lift barrel production levels from current rates to meet increased demand for American product.
Moving InBev from Belgium to St. Louis and keeping the AB name may help this situation, but it remains to be seen if this option will be explored.
More to come.
Anheuser-Busch in the News:
- Brewer Bids $46 Billion for Anheuser-Busch
- Anheuser-Busch - King of Missouri Donors
- Grupo Modelo CEO Resigns from Anheuser-Busch Board
- Busch Family Members Divided in Response to InBev Takeover Bid
- Don’t Knock InBev, Invite it to St. Louis
- Unreal Helps Schlafly save AB
Authors note: I currently hold Anheuser-Busch shares