This article first appeared in the St. Louis Beacon: June 15, 2008 - The suitor for Anheuser-Busch has sent another letter to the St. Louis brewer, and this one doesn’t sound as friendly as the “friendly combination” offer made on June 11 by the Belgian beer giant InBev.
On Sunday, InBev reminded Anheuser-Busch that its offer of $65 a share was based only on the St. Louis company’s “current assets, business and capital structure.”
InBev was reacting to “recent press reports” that Anheuser-Busch was talking to Mexico’s Grupo Modelo. Citing unnamed sources, The Wall Street Journal reported Friday that Anheuser-Busch and Grupo Modelo had started discussions, but it didn’t describe the nature of the talks.
“It is our policy to not confirm, deny or speculate on rumors of potential investments, acquisitions, mergers, new business partnerships or other transactions,” said W. Randolph Baker, Anheuser-Busch’s chief financial officer, in a prepared statement Sunday.
Anheuser-Busch owns 50.2 percent of Grupo Modelo. Analysts have speculated that it might try to buy the rest of the Mexican company as a tactic to discourage InBev. Despite its stake, Anheuser-Busch lacks operating control of Grupo Modelo.
Assuming Grupo Modelo shareholders would agree, analysts say an Anheuser-Busch buyout could cost $10 billion to $15 billion.
Not only would that add to the cost of InBev’s original offer - worth about $46.4 billion - it also would force InBev to borrow more money. InBev will borrow at least $40 billion to help finance its initial offer.
“We would expect that prior to proceeding with any alternative transaction, especially if your shareholders will not be given the opportunity to vote on it, you would first fully explore our offer,” said Carlos Brito, chief executive of InBev, in a letter to August A. Busch IV, the Anheuser-Busch CEO, and company directors. Brito warned they should contemplate “the potential adverse consequences any such transaction [with Grupo Modelo] could have on the ability of your shareholders to receive our premium offer.”
Brito added that “it is our strong belief that no alternative transaction” made by Anheuser-Busch could create more shareholder value than the $65-a-share offer. “We are convinced your shareholders would reach the same conclusion,” he said.
If Anheuser-Busch’s board rejects InBev’s offer, the Belgian company could make its pitch directly to shareholders. If there is a long, drawn-out fight for Anheuser-Busch, InBev could, in theory, mount a challenge to the St. Louis company’s directors.
Because Anheuser-Busch lacks standard defenses to fight a takeover, the $65-a-share price looms as an attractive lure to shareholders. The company’s stock has never reached this level.
Until a Financial Times blog reported in late May that InBev was preparing an offer, Anheuser-Busch’s stock had been flat for five years. On May 22, the day before the Financial Times report, Anheuser-Busch’s stock closed at $52.58. On June 13, two days after the formal InBev bid, the stock closed at $61.12.
There’s no big block of shares that could be mobilized against InBev. The Busch family owns about 4 percent of company shares. Directors and executive officers - including August A. Busch IV and his father, August A. Busch III - own about 4.5 percent.
Anheuser-Busch also lacks a “poison pill” - a financial device used by companies to thwart hostile takeovers. However, the company could install such a defense quickly without needing an immediate vote by shareholders.
Poison pills allow existing shareholders to buy extra stock at a sharp discount if an unwanted suitor acquires a certain percentage of a target-company’s stock. The strategy dilutes the invader’s stock power.
Although InBev has a strong presence in Latin America, especially Brazil and Argentina, it has no influence in Mexico. Grupo Modelo has a 56 percent market share in Mexico.
“We have the greatest respect for Grupo Modelo and its management,” Brito’s letter said. “[We] look forward to the opportunity to work with them to explore possible ways to expand the availability of the Grupo Modelo brands outside of North America.”