Politicians Line Up To Save Anheuser-Busch Shareholders From Profits, InBev
ST. LOUIS — U.S. politicians are already protesting Belgian brewer InBev's unsolicited $46 billion bid to buy Anheuser-Busch Cos. Inc. and absorb the iconic brewery to create the world's fourth largest consumer products company. But it appears lawmakers have little leverage to stop the deal, which might ultimately be approved on antitrust grounds.
"It's going to cause a lot of the angst and hand wringing," said Douglas Cogen, a mergers and acquisitions attorney with the Fenwick & West law firm in San Francisco. "In the end, there isn't a lot of regulatory clearance that this deal needs."
There are signs Anheuser-Busch is trying to thwart the deal. The Wall Street Journal reported Thursday the brewer has begun preliminary talks with Mexico's Grupo Modelo SAB about a possible merger. The paper cited anonymous sources who said Anheuser-Busch approached Carlos Fernandez, chief executive of Modelo and an Anheuser-Busch director, about a deal in recent weeks.
Anheuser-Busch already owns a roughly 50 percent non-controlling stake in Modelo. If the companies merge, the combined company could be too big for InBev to purchase. An Anheuser-Busch spokeswoman said no one could comment on the report.
Modelo issued a statement saying it would closely follow the talks between Anheuser-Busch and InBev, but said its objective was to "remain a proudly Mexican company." Alvaro Zarza, Modelo's head of press relations, declined to comment on the report of recent talks between Fernandez and Anheuser-Busch executives.
InBev Chief Executive Carlos Brito spent part of a Thursday morning conference call trying to calm political and regulatory concerns about the deal.
Brito said the merged company, which would be the world's largest brewer by far, would not violate antitrust laws because it would combine breweries that operate in different geographic markets. Brito downplayed the prospect that InBev would slash U.S. jobs and promised not to close any Anheuser-Busch breweries.
"This compelling combination would create significant value for both companies' shareholders," Brito said.
InBev's offer translates to $65 a share for Anheuser-Busch stockholders, a rich premium over the company's stock price of $58.35 Wednesday before the offer was made public. Anheuser-Busch's stock jumped more than 5 percent Thursday to close at $61.40 a share.
Anheuser-Busch management has been largely mum about the deal. The company said Wednesday its board of directors would consider the offer and respond to InBev "in due course," but did not elaborate. A spokeswoman did not comment further, and did not return a message seeking comment Thursday.
Even if senior executives and the board oppose the deal, they might have few options to stop it, said Andy Baker, a vice president of special situation strategies at the New York-based investment bank Jefferies & Company, Inc.
Anheuser-Busch's bylaws allow shareholders to bring a motion to vote if just 25 percent approve of a deal, Baker said.
That means the board or senior management must convince shareholders they have a plan to push the stock price to $65 in the near future. The stock has been largely flat over the last two years, hovering in the $50-per-share range, and options to boost it are few, Baker said.
The company could spin off its theme-park division, but that segment only generates $100 million in annual cash flow, compared to Anheuser-Busch's overall 2007 revenue of $16.7 billion. A merger with Grupo Modelo wouldn't reach the scale of the InBev deal in terms of revenue for shareholders, Baker said.
"It would take years for the company to get to $65. From a financial point of view, (the InBev offer) makes senses," Baker said. "There is such a clear path for shareholders to supersede the board that they can do this themselves."
While the offer might look good on paper, political reaction has been swift, with both of Missouri's senators publicly opposing the deal
Sen. Kit Bond, R-Mo., sent a letter Thursday to Attorney General Michael Mukasey, asking him to closely scrutinize the acquisition.
"The proposed foreign acquisition of Anheuser-Busch is troubling to me because it potentially raises antitrust issues under existing law by putting a significant market share of the U.S. in the hands of fewer competitors," the letter said.
Sen. Claire McCaskill, D-Mo., said she was "nervous" about the deal, and planned to send a letter to Anheuser-Busch's board of directors asking them not to allow the deal to move forward.
"On behalf of me and all my friends that like nothing better than a Bud Light every summer, it makes us very upset," McCaskill said.
Missouri's Republican Gov. Matt Blunt said he opposes the deal and has directed the state Department of Economic Development to see if it can stop it. Blunt's former chief of staff co-founded a Web site called SaveAB.com that has passed an electronic petition opposing the deal to federal lawmakers. The site promises to hold anti-InBev rallies in the downtown St. Louis Busch Stadium.
Political repercussions from InBev's offer even touch the presidential race.
Republican presumptive nominee John McCain's wife Cindy shares roughly $1 million worth of Anheuser-Busch stock with the McCain children. Cindy McCain's father founded Hensley & Co., a Phoenix beer distributor that describes itself as the third-largest Anheuser-Busch wholesaler in the United States.
Hensley & Co. sold more than 23 million cases of beer last year and is among the nation's biggest beer distributors regardless of brand. Beverage industry analysts put Hensley's annual sales at $300 million or more.
McCain's campaign did not return a message seeking comment.
It's unclear how distributors like Cindy McCain's father James Hensley will view the InBev bid. The national network of independent distributors is a key competitive advantage for Anheuser-Busch, helping the brewer keep its products widely stocked at choice retail locations. The distributors, in turn, are reliant on Anheuser-Busch for a steady stream of products and lavish marketing campaigns.
In spite of any political rhetoric, the only major regulatory hurdle would be passing antitrust concerns with the U.S. Department of Justice, Cogen said.
A Justice Department spokeswoman wouldn't comment on the proposed combination. But last week the department approved a joint venture between SABMiller PLC's Miller Brewing Co. and Molson Coors Brewing Co. to distribute their beers in the United States.
Brito pointed out Thursday that InBev has a strong presence in European and Latin American markets where Anheuser-Busch is a niche player. In the United States, where Anheuser-Busch controls nearly half the market, InBev has small presence.
Without substantial overlap between the InBev and Anheuser-Busch, "it's unlikely that the Justice Department will challenge the merger," said James Fishkin, a partner at Dechert LLP and former antitrust attorney at the Federal Trade Commission.
Joseph Krauss, an antitrust lawyer with Hogan & Hartson, said political concerns about job losses or other issues are unlikely to have much impact on the government's review.
Spokeswomen for House and Senate committees that oversee antitrust issues said they would wait until the deal is completed before commenting.
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Associated Press reporters Sharon Theimer, Sam Hananel and Christopher Rugaber in Washington and Theresa Bradley in Mexico City contributed to this article.
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CHRISTOPHER LEONARD | June 12, 2008 06:33 PM EST |
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