Thursday, June 26, 2008

InBev/Budweiser...and so it begins

InBev submitted its offer to Anheuser-Busch, as many had expected, and BUD shares promptly popped. The deal is for $46B, and its mostly cash, which is incredible. I guess the financing is still out there.

The intrigue around BUD's options is as much the story. BUD has reportedly reached out to Modelo to try and increase its 50% stake, but many at Modelo believe BUD got the original 50% at a great price. Buffet is the largest single shareholder, via Berkshire, at 5%, and would not comment on the deal. Sometimes silence is louder than saying anything.

Let's get to the numbers. BUD was trading at $52.58 a share pre-announcement. The shares had been trading sideways for the last few years. As a shareholder, the bid at $46B, or $65/share, represents a 24% premium to BUD's offer. The new company would generate approximately $36B in sales. But more importantly, from a cost perspective, BUD "value" preaanouncement was $37.5B ($52.58 x 713M shares), and InBev's opening bid represents a value of $46B. The difference of ~$9B represents the costs or redundancies InBev think it can cut out and still keep the same or better profit margins. InBev obviously thinks the cost it can remove is higher, since they will like have to raise their initial bid.

The cultural and political issues are the ones beyond the numbers that demand attention. As a BUD shareholder, if you believe your management can add value to your company so that BUD will be worth $65B alone, then you might buy the political rhetoric that we should not allow an American icon to be bought. Either way, this one will probably go hostile.

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