Sunday, July 20, 2008

InBev Takeover Anheuser-Busch for $52 Billion

The maker of the King of Beers has agreed to go to work for the Belgian brewer InBev SA. Anheuser-Busch Cos. said that it had agreed to a sweetened $52 billion takeover bid from InBev, creating the world's largest brewer and heading off what was shaping up as an acrimonious fight for the maker of Budweiser and Bud Light beers. Inbev brands include Stella Artois, Beck's and Bass.

InBev is the world's second-largest beer-maker, narrowly behind SABMiller. It has more than 600 years of brewing beer in Belgium. Swallowing Anheuser-Busch sees it leap ahead, capturing half of the U.S. beer market and a fifth of Russia and China.

The combined company will be called Anheuser-Busch InBev. As of the end of last week, InBev said it would be the world's third largest consumer products company by market capitalization after Procter & Gamble of the United States and Nestle SA of Switzerland.

According to a joint press release, the Anheuser-Busch board has accepted the higher takeover offer from Belgian-based InBev. The deal is expected to close by year-end.

Carlos Brito, the CEO of InBev, said in a media conference call, "What consumers care is that their Bud will always be their Bud, and that's what we're committed to, not only the product, the quality, the beer ... but also the heritage, the breweries, who brews the beers, and everything that's connected to the breweries."

For InBev, the deal gives an aggressive company an iconic beer brand, called Budweiser, to sell into emerging markets such as Brazil and China where it has already established a wide network.

Brito will be chief executive officer of the combined company, while Anheuser-Busch CEO August Busch IV will step back into a non-executive role. He will be a member of the new company's board alongside one other nominee from Anheuser-Busch, yet to be named.

Shareholders will receive $70 a share, a $5 increase over the offer Anheuser-Busch rejected in June. Both companies' shareholders must approve the deal, as must U.S. and EU antitrust regulators. Moreover, the deal drew the attention of Mexico's Grupo Modelo. Anheuser-Busch also owns a 50 percent share in Grupo Modelo that said its relationship with Anheuser-Busch gives it consent rights to the deal.

InBev plans to use St. Louis as its North American headquarters, and that it will keep open all 12 of Anheuser-Busch's North American breweries. InBev will borrow $45 billion and plans to issue new shares to raise another $9.8 billion. Moreover, InBev will sell off "non-core assets" that they would not name to raise some $7 billion to finance the deal. On the other hand, shareholders will not see much joy in the short-term. InBev warned of lower dividends and no benefit to earnings per share until 2010.

InBev cost synergies of at least $1.5 billion a year by 2011 over three years. Most of that will come from managing the supply chain better. InBev's sharp eye on costs has forced managers to justify every cent spent. Monday's kiss-and-make-up announcement from both companies came after several weeks of guns blazing. InBev said on June 11 it wanted to buy Anheuser-Busch that distributes its beers in the U.S.

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