Anheuser, InBev Reach
A Deal for $52 Billion
Anheuser-Busch Cos. agreed to be acquired by InBev NV for about $52 billion, creating the world's largest beer maker and placing an iconic American company in the hands of a Belgian-Brazilian giant.
The $70-a-share deal marks an abrupt end to what many expected to be a prolonged takeover drama. For weeks, Anheuser showed stiff resistance to a sale. But last week, InBev, based in Leuven, Belgium, drew its St. Louis rival into friendly discussions by increasing its original cash offer by $5 a share.
The companies plan to call the new brewer Anheuser-Busch InBev. Anheuser will have two seats on the board. The board, which will include Anheuser-Busch President and Chief Executive August Busch IV, will have 14 members, up from 12 currently on the InBev board.
The deal caps Anheuser's roughly 150 years of independence and will create a global juggernaut. The new company will have net sales of about $36 billion a year, followed in size by London's SABMiller PLC. The two companies have about 300 brands, including Anheuser's Budweiser and Bud Light and InBev's Stella Artois and Beck's.
The agreement is evidence that even though the global mergers-and-acquisitions market has slowed as a result of the credit crisis, the appetite of many corporations for takeovers is still strong. It also shows that banks, despite the losses they have suffered on risky debt they took on in recent years, are willing to open their checkbooks to help fund combinations of strong companies.
The tie-up carries significant risks for InBev. Most of Anheuser's profit comes from the U.S. market, which is growing at a slow clip. Mass-market brewers face rising competition in the U.S. from small-batch "craft" beers, wines and spirits.
InBev and Anheuser don't have much overlap around the globe, so cost cuts from combining staffing and brewing operations may be harder to achieve than in other major beer-industry deals.
The deal with InBev closes the book on an American corporate dynasty. Anheuser and its predecessor companies have been led by members of the Anheuser or Busch families for most of the past 156 years.
Mr. Busch told beer distributors in April, before a formal bid materialized, that a sale wouldn't happen "on my watch." But the Busch family owns a small fraction of the company's stock, and Anheuser's directors were sensitive to their duty to serve public shareholders. Mr. Busch met with InBev CEO Carlos Brito in New York Friday, according to a person familiar with the matter.
Anheuser had few options to evade InBev. It approached its Mexican partner, Grupo Modelo SA, about buying the half of the brewer it doesn't already own, a move that might have made the U.S. brewer too expensive for InBev. But those talks fell through, say people familiar with the matter.
On June 26, Anheuser's board formally rejected InBev's original proposal of $65 a share, saying it substantially undervalued the dominant U.S. beer maker. However, the board indicated that it would be open to a higher price.
The takeover battle grew increasingly hostile. Last week, InBev began trying to sack Anheuser's board. Meanwhile, Anheuser sued InBev, accusing it of lying about its lending commitments.
The sale price marks a significant premium to where Anheuser shares traded before speculation of a deal emerged earlier this year. Anheuser shares had languished at about $50 a share for about five years. Before the rumors surfaced this spring, the stock's previous high was $54.97, in October 2002. The company's shares closed at $66.50 in 4 p.m. New York Stock Exchange composite trading Friday.
The deal sets up a battle in the U.S. beer market between two foreign giants: Anheuser-Busch InBev and SABMiller. The shift is likely to result in a leaner industry with fewer employees, but consumers probably won't benefit from the price wars they have enjoyed in the past.
The U.S. brewing industry will enter an era "where gaining market share is not going to be nearly as important as running costs out of the system," said Harry Schuhmacher, editor of industry newsletter Beer Business Daily. "It's been a pretty fat industry. Everybody has enjoyed a lot of perks, and there are a lot of people in the industry, probably too many."
The combination of InBev and Anheuser, along with the recently formed MillerCoors LLC, will together control about 80% of beer sales in the U.S., the world's largest beer market in terms of profit. MillerCoors is the recently completed joint venture combining the U.S. and Puerto Rican operations of Miller Brewing, the U.S. unit of SABMiller, and Coors Brewing, the American arm of Molson Coors Brewing Co. of Denver and Montreal. Anheuser controls nearly half the market and MillerCoors about 30%.
The reshaping of the U.S. beer sector in the past year has been driven by lackluster sales growth for mass-market brews such as Miller Lite and Budweiser and the desire by global brewers to gain economies of scale amid rising costs for commodities such as barley, aluminum and glass.
For years, Anheuser and Miller took jabs at each other's products in advertisements. And they often engaged in price wars to try to filch market share from each other. When Anheuser slashed prices in 2005, it was a boon to beer drinkers but reduced profits for the major beer makers.
Lately, the companies have been raising prices, in part to cover higher commodities costs.
A new industry architecture led by InBev, SABMiller and its partner, Molson Coors Brewing, is expected to focus more heavily on cost cutting.
MillerCoors is likely to cut hundreds of jobs in the coming months as Miller and Coors combine sales, marketing and other employee groups, says Benj Steinman, editor of industry newsletter Beer Marketer's Insights.
Meanwhile, Anheuser laid out plans to cut about 1,000 full-time salaried workers this quarter as part of an alternative to an accord with InBev. "You have to imagine InBev will go to that" level of head-count reductions, Mr. Steinman said.
The beer companies also are expected to stop selling certain packages or versions of their beers to trim costs, among other efforts to become more efficient.
InBev's corporate culture is focused heavily on cost controls, so some analysts think the company would take steps to slash Anheuser's hefty marketing budget, which could harm its brands. But Mr. Brito, InBev's chief executive, "is emphatic...that they would be nuts to mess up the business Anheuser has built," said Mr. Steinman. "The smart idea is to keep what's going right at A-B."
The increased consolidation of the U.S. beer industry worries some of the nation's smaller brewers, who fear they may have a harder time gaining distribution. "It narrows the options for small brewers to gain access to market," said Kim Jordan, chief executive of craft brewer New Belgium Brewing Co. of Fort Collins, Colo. "Recently, we've seen more interest among the Anheuser-Busch distributors in our products than ever before," but that might change with InBev running Anheuser.
The combination of Anheuser and InBev won't result in major changes to the lineup of beers sold by Anheuser's distributors. Many of them already sell InBev's European brews, such as Stella Artois, under an import deal between Anheuser and InBev that began last year. But the tie-up between Anheuser and InBev means that InBev's Canadian brands, such as Labatt Blue, will be part of the combined company.
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