This article first appeared in the St. Louis Beacon: July 7, 2008 - The battle for Anheuser-Busch accelerated Monday as Belgium’s InBev asked U.S. regulators to allow the St. Louis company’s shareholders to remove all board members. Anheuser-Busch said Monday that InBev’s attempt to replace the board is a “self-serving effort” to promote an offer that is “not in the best interest” of shareholders.
Shareholders deserve “an opportunity to have a direct voice in the proposed combination with InBev,” the Belgian brewer said in a statement. Anheuser-Busch’s board recently rejected a $65-a-share offer.
The increasingly hostile fight also has become a family feud. InBev has recommended a slate of replacement directors, including Adolphus A. Busch IV, uncle of the current CEO August A. Busch IV and half-brother of August A. Busch III, the former chairman and CEO.
Adolphus Busch isn’t involved in management; but he has been the most vocal member of the extended Busch family calling for shareholders to accept the best offer for the company. That best offer, he says, is InBev’s June 11 bid. Anheuser-Busch’s board rejected the offer as inadequate on June 26.
“The action to threaten the board is an expected move in this chess game,” said Ronald J. Kruszewski, chairman and CEO of St. Louis-based Stifel Financial Corp.
“This is no surprise,” says Juli Niemann, executive vice president of Smith, Moore & Co., a Clayton financial advisory firm, in discussing InBev’s board-removal petition to the Securities and Exchange Commission. “This is Stage 2.”
Stage 1 was InBev’s filing a suit in Delaware Chancery Court a few hours before Anheuser-Busch’s board rejected its offer worth about $46.4 billion on June 26. The suit, filed where Anheuser-Busch is incorporated, asks whether Delaware law permits all board members to be bounced by the St. Louis company’s shareholders. Anheuser-Busch has said it will contest the suit.
InBev believes all 13 members can be removed by shareholders - before the next annual meeting in April - through a process called written consent. InBev is seeking the court’s opinion because Anheuser-Busch has changed its director-election process.
Directors had been elected on a staggered basis - three-year terms for several directors each year for three consecutive years so that a majority couldn’t be removed at once. However, Anheuser-Busch now requires directors to stand for election each year. Eight directors, including August A. Busch IV and August A. Busch III, are covered by the new rules; five are serving under the old system.
Once the Delaware court rules, InBev is free to ask Anheuser-Busch shareholders to oust the board members. That’s why InBev filed a preliminary request on Monday with the SEC to approve a written consent solicitation - a rare, expensive and cumbersome process. The SEC makes sure that the rules for soliciting votes are obeyed.
Judge delays St. Louis suits
A St. Louis judge agreed Monday to Anheuser-Busch Inc.'s request that he put off consideration of two shareholders' suits claiming that the brewery's board violated its legal duties by rejecting InBev's purchase offer.
St. Louis Circuit Judge Thomas C. Grady granted Anheuser-Busch's request that Missouri courts delay two suits filed here while Delaware courts take up nine similar cases. Grady said it made more sense for Delaware courts to hear the suits because Delaware judges have special experience applying Delaware law in securities cases. A-B is registered as a Delaware corporation.
Grady also reasoned that the brewery should not be subjected to the cost and inconvenience of having to represent itself in two states and the risk of being subject to different orders from the different states.
The so-called shareholders' suits in Missouri and Delaware claim that the board broke its "fiduciary duty" to the company and shareholders by not properly considering InBev's offer.
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InBev also will ask shareholders to approve a resolution repealing any changes in Anheuser-Busch’s bylaws made after June 26 by the current board. InBev says a new board might be hampered by these new rules.
"Our strong preference remains to enter into a constructive dialogue with Anheuser-Busch to achieve a friendly combination that comprehensively addresses the interests of all constituents,” Carlos Brito, the InBev CEO, said in a prepared statement Monday.
InBev said it needs a majority vote to oust each director. It added that it will ask Anheuser-Busch “in due course” to set a record date for a written consent solicitation. This date establishes which shareholders are eligible to vote. Anheuser-Busch has 10 days to reply, InBev said.
Anheuser-Busch said it will file its objection to InBev’s proposal with the SEC in a few days, promising to offer “additional specific information.”
NOW OR LATER
The key issue is whether shareholders want InBev’s $65-a-share now; believe Anheuser-Busch can achieve that price through its new strategic plan; or think InBev will raise its offer. Brito reiterated on Monday that $65 a share is a “firm” offer.
“People need to take a longer view of what Anheuser-Busch would look like under InBev,” said Kruszewski of Stifel Financial. “I’m not persuaded by InBev’s offer. I think they’re undervaluing the company.”
Niemann, of Smith Moore, says shareholders should take the money and run. “There’s no way A-B can execute to get the stock to $65 on its own,” she said, referring to the company’s June 27 announcement for improving the stock price.
The plan includes cutting 10 percent to 15 percent of 8,600 salaried workers, trimming manufacturing and distributing costs, raising beer prices and buying back more stock. InBev said the plan contains “significant execution risk.”
Anheuser-Busch didn’t give a timetable for achieving its goals. “Why didn’t they do this earlier?” Niemann asked. “In this market, the $65 that you can put in your pocket is pretty important.” Anheuser-Busch’s stock closed Monday at $61.64.
It’s hard to predict how shareholders might vote because the stock is scattered among many investors.
Directors and officers, including August A. Busch III and August A. Busch IV, hold about 4.5 percent of the shares. The two Busches own a combined 1.6 percent.
The largest shareholders are institutions. As of March 31, Barclay’s Global Investors held 6.1 percent, followed by Warren Buffett’s Berkshire Hathaway at just under 5 percent, according to Vickers Stock Research. Buffett hasn’t chosen sides; Barclay’s parent has another division promising to lend money to InBev for its takeover bid.
The next eight large shareholders include a host of giant banks and mutual fund companies owning between 3.3 percent and 1.2 percent of shares.
InBev’s proposed directors don’t own much Anheuser-Busch stock, including Adolphus A. Busch IV. He is identified in an SEC filing as founder and chairman of a conservation group, Great Rivers Habitat Alliance; a consultant to Silver Eagle Distributors; and principal owner of Eager Road Associates, a real estate development company. He directly owns 215,608 shares of Anheuser-Busch, less than one-tenth the amount owned by his nephew August A. Busch IV.
The InBev slate is filled with many ex-CEOs, ex-chairmen and ex-top officers of large corporations. One is Henry A, McKinnell, former chairman and CEO of Pfizer. McKinnell abruptly left the drug giant’s CEO job in July 2006 in what analysts said was the board’s unhappiness with the stock falling nearly 40 percent during his five-plus years as CEO.
The medical profession is well represented on the InBev slate, including Ronald W. Dollens, former chief executive of the medical device-maker Guidant and current chairman of Kinetic Concepts, a medical technology company, and Ernest Mario, who has held the top jobs at three drugmakers: Glaxo Holdings, Alza and Reliant Pharmaceuticals.
Robert W. Steyer is a longtime business reporter.
Coverage Elsewhere
InBev turned up the heat, but is a long way from forcing A-B's board out of the kitchen, Post-Dispatch columnist David Nicklaus writes.