InBev share returns show who’s really ‘King of Beers’
‘The Brazilians’ are expected to find ways to make their proposed $46.3-billion purchase of Anheuser-Busch pay, write CHARLES PENTY and DUANE STANFORD in New York.
InBev NV, the world’s biggest brewer, contacted John Sleeman when the Canadian put his 157-year-old beermaker, Sleeman Breweries Ltd, up for sale in 2006. He told them no thanks and sold to a Japanese buyer who pledged not to close plants or fire workers.
Mr. Sleeman had watched as InBev’s Brazilian managers took charge of Labatt Brewing Co. in 2004, shut down a plant, cut staff and slashed perks, including first-class airfare.
While employees may have suffered, shareholders didn’t. Between 2005 and 2007, cash flow from InBev’s North American operations climbed 25 percent to about $900 million, and InBev’s shares doubled.
Now, InBev has come calling on Anheuser-Busch Cos., making an unsolicited $46.3-billion bid that would be the largest cash takeover in history and combine Budweiser, the “King of Beers,” with InBev’s Stella Artois and Bass brands.
A purchase of AnheuserBusch would be the secondbiggest acquisition of a consumer products company after Procter & Gamble Co. bought Gillette Co. for $57 billion in 2005. It would be the thirdbiggest U.S. company to be taken over by a foreign buyer.
InBev, dominated by a group of Brazilian investment bankers and managers, has succeeded by focusing on costs and selling into the developing world, where there is a fast-growing population of young, male beer drinkers. The challenge for InBev will be executing that strategy in the U.S., where the law protects distributors and the market is growing more slowly, without damaging the Budweiser brand.
“They’re an efficiency machine and they’ll stop at nothing,” said Claudio Bueno, a distributor forced out of business when the Brazilian brewer that combined with Interbrew SA to form InBev increased the amount of beer it shipped directly to retailers to cut costs.
The Belgian-based InBev also faces a reluctant target in Anheuser-Busch, a five-generation, family business that has made Budweiser for 132 years.
As a diversionary tactic, Anheuser-Busch was holding talks with Corona-maker Grupo Modelo SAB on a combination that might derail InBev’s $65-ashare bid, the
Wall Street Journal has reported.
But even if it tries, the Busch family doesn’t have enough shares to derail a purchase. The company’s insiders, including family members, have just 4.5 per cent of Anheuser-Busch’s outstanding stock. Besides August Busch III, the father of the CEO, no family member holds more than one per cent of the company.
The family and directors are split over possible negotiations with InBev, the Journal said, citing family member Adolphus Busch IV.
InBev pledged not to dismantle Anheuser-Busch, the top U.S. brewer for half a century. “Given your efficient brewery footprint in the United States, we will maintain all your existing breweries,” Carlos Brito, InBev’s chief executive officer, said in a letter to CEO Mr. Busch.
Mr. Brito said the acquisition would be “a big international opportunity” to bring Budweiser to more than 30 countries where InBev has breweries. The combined company’s more than $36 billion in annual sales and 40 billion litres of shipments would also allow the negotiation of better terms from suppliers as expenses soar for barley, hops, electricity and metal for beer cans, he said.
InBev, which traces its roots to 1366, took its current form in 2004 when Leuven-based Interbrew SA bought Sao Paulobased AmBev, in an $11-billion transaction. In less than two years, Interbrew’s American CEO had been replaced by Mr. Brito, a Brazilian who had been groomed by the Brazilian investment bankers who had built AmBev from a brewer they acquired in 1989.
Interbrew’s combination with AmBev created the largest beermaker in the world. InBev sold 20.6 billion litres of beer globally in 2006, compared with 14.7 billion litres for third place Anheuser-Busch. SABMiller PLC sold 16.3 billion litres, according to Euromonitor International Inc. in Chicago.
Since the merger, InBev’s earnings before interest, taxes, depreciation and amortization as a percentage of sales have in- creased to 35 per cent from 25 per cent.
An engineer, Mr. Brito describes InBev as a meritocracy, where top-performers are rewarded and expensive perks aren’t tolerated. Success is measured by numbers, and those who don’t fit often leave.
“I don’t want a company car, I don’t care,” he said in a February speech at Stanford Graduate School of Business, where he received an MBA in 1989. “I don’t want the company to give me free beer. I can buy my own beer.”
InBev may have trouble lowering costs given potential resistance from Anheuser-Busch’s unions and the low market overlap between the two companies, said Jonathan Feeney, an analyst with Wachovia Se- curities Inc. in New York. “The highly regulated nature of the beer industry could pose other deal difficulties,” Mr. Feeney said.
The prospect of an InBev takeover is frightening to Anheuser-Busch distributors, said Joe Thompson, president of Independent Beverage Group in Hilton Head Island, South Carolina, which brokers buyouts between beer distributors.
“They just worry about losing their influence with their supplier,” he said. “If you can pick up the phone and call vicepresident of marketing Dave Peacock because you’ve known him for 20 years, it’s a lot better than picking up the phone and calling someone in Brazil.”