Thursday, June 12, 2008

Inbev Makes Bid For Anheuser Busch

Inbev officially announced its takeover bid for Anheuser Busch. They offered $46.4 billion for the American brewer, valuing the target firm at a 35% premium to the 30-day average stock price prior to recent speculation about the acquisition.

As I mentioned in a recent Reuters article, I think the Anheuser Busch board of directors will have a hard time turning back this bid without making other strategic moves. (Consider what has happened at Yahoo after that firm rejected the Microsoft bid). Shareholders are not likely to be pleased if the board simply rejects a bid that offers a substantial premium. The family only owns about 4% of the shares, so it cannot block the deal on its own.

If the Busch family does not want to sell to Inbev, what can they do? I think that one possibility would be to find a private equity buyer who would be willing to retain and work with the current management team in place, particularly CEO August Busch IV. Mature companies with strong, stable operating cash flows and valuable brands make attractive targets for private equity investors. The only question would be whether a private equity firm (or group of firms) could raise the required capital at the right price given this year's turmoil in the capital markets.

Regardless of what happens, I think you will see prospective buyers (Inbev, private equity firms, or some other white knight) taking a close look at some of Anheuser-Busch's ancillary operations. While the theme park business (Busch Gardens, Seaworld, etc.) is quite profitable, it's hard to make a case that strong economies of scope exist between the beer business and the theme park operations. One way to generate cash to help finance a deal would be to sell the theme parks. Other business units, such as the firm's packaging operations, might also receive scrutiny.