Stock Analysis
Anheuser-Busch (BUD)
Date (29/09/2008)
Portfolio Management and Security Analysis, FINA 5230
Assignment #2
Group Number 4
Jordan Benold
Bradley Berry
Yi-Ting Chen
Crystaline Norris
THESIS
Anheuser-Busch is the leading U.S brewer and producer of beer with over
48% of the U.S market share. They have the two largest-selling beers in the
world, Budweiser and Bud Light. With over 50 years as the U.S industry leader,
Anheuser-Busch is one of the most successful and consistent businesses in the
world. This is one of the reasons InBev, a Belgium based-brewer, has bid on
Anheuser-Busch and looks to close the deal by the end of 2008.
Once the InBev deal goes through, Anheuser-Busch will have a stronger
international presence. Currently, only 7% of their sales are from international
markets. This lack of presence has caused Anheuser-Busch’s sales volume to
drop over the past few years as their competition increases in the U.S and
Anheuser-Busch does not have the sales base overseas to make up for the
decline here at home.
Anheuser-Busch International, Inc., the international beer subsidiary of
Anheuser-Busch Companies Inc., operates 16 breweries around the world. They
also handle all the equity investments overseas. In recent years they have
gained 100% ownership of a brewery in India as well as claimed stake in
breweries in Mexico, China and Argentina. However, these endeavors still do not
give Anheuser-Busch the presence they need to be a true player in the
international market. Thus, the InBev buyout will give them the resources they
need to be the world’s largest brewer.
We feel the price per share InBev will pay is a substantial premium for the
shareholders and speaks to the brand Anheuser-Busch established over 150
years ago. The new company, Anheuser-Busch InBev, is forecasted to control
about one-fourth of the global beer volume and become the dominate brewer in
the world.
COMPANY OVERVIEW
Anheuser-Busch was established in 1860 by Eberhard Anheuser after he
acquired a struggling Bavarian brewery. It was known then as E. Anheuser &
Co., but after the marriage of his daughter Lilly to Adolphus Busch the company
later became Anheuser-Busch once Busch joined the company in 1864. Busch
was a successful German businessman who, through marketing and innovation
well ahead of the times, grew the local brewery into an industry leader.
In the early 1870’s, Anheuser-Busch was the first American brewery to
use pasteurization, which allowed beer to be shipped longer distances without
spoiling. Later, Busch introduced refrigerated railcars and icehouses which
meant beer could now be distributed around the country and was the beginning
of Anheuser-Busch’s vast distribution network. During Prohibition in the 1920’s
was when Anheuser-Busch really began to diversify. They marketed over 25
different non-alcoholic products including sodas, malt syrup, and ice cream.
During this time, more than half of the nation’s breweries closed, leaving
Anheuser-Busch to grow in its dominance. By 1957, Anheuser-Busch became
the leading U.S brewer and extended its diversification. To date, there has been
five generations of Busch to lead the company, making it a truly family-owned
business.
With its headquarters located in St Louis, Missouri, Anheuser-Busch
operates under four business segments: Domestic Beer, International Beer,
Packaging, and Entertainment. Anheuser-Busch operates 12 U.S Breweries and
13 distribution facilities strategically placed across the country. They produce
over 100 beers, flavored alcohol beverages and nonalcoholic brews such as
Budweiser, Bud Light, Michelob ULTRA, Busch, Natural Light, and O’Doul’s. U.S
sales were about 104.4 million barrels in 2007, about two times its closet
domestic competitor. About 70% of the domestic volume is sold through
“exclusive distributors,” which is a key advantage for Anheuser-Busch. The
International Beer segment is controlled by Anheuser-Busch International, Inc.,
which was established in 1981. This subsidiary markets and sells Budweiser and
various other brands outside the U.S. With 16 breweries and distribution in over
90 countries, international sales account for about 7% of A-B’s net sales or 24
million barrels sold. Also, Budweiser, Anheuser-Busch’s top selling beer, is
locally brewed in nine other countries outside the United States. AnheuserBusch International, Inc. also negotiates and administers license and contract
brewing agreements with various brewers and negotiates and manages equity
investments in foreign brewing partners. Currently, Anheuser-Busch has 100%
ownership of Crown Beers India Ltd. and Harbin Brewery Group Ltd. in China.
Investments include a 50% interest in Grupo Modelo in Mexico, a 27% interest in
Tsingtao Brewery Company Ltd. in China and an 8% interest in Compania
Cervecerias Unidas S.A in Argentina. The Anheuser-Busch Packaging Group
provides a reliable source of high-quality lids, cans, bottles and other packaging
materials for Anheuser-Busch’s U.S beer operations. Owning their own
packaging and recycling facilities allows Anheuser-Busch to manage supply, cost
and quality of packaging materials. Anheuser-Busch also produces cans and lids
for other major U.S. beverage companies such as PepsiCo and Coca-Cola.
Packaging operations accounted for about 10% of total net sales in 2007. Busch
Entertainment Corporation is one of the largest theme park operators in the U.S
with 10 parks including: SeaWorld, Discovery Cove, and Busch Gardens. More
than 22 million guests visited BEC theme parks last year. BEC accounted for
about 8% of total net sales in 2007.
MARKET PROFILE
The domestic brewing industry has been increasing at a steady pace over
the past several years. In 2007, the volume was about 212.5 million barrels.
This is about a 1.2% increase over last year. There are over 100 brewing
companies in the U.S; however, there are only a few breweries that have the
majority of the market share, 90%. This means the industry is very competitive.
It is also important to note that international brewing is increasing, thus these
imports add to the stiff competition. The current economic condition has also
affected this industry. The rise in commodity prices for items such as wheat and
barley, which are key ingredients in beer, has increased cost at many breweries.
Many breweries are considering using ingredients such as rice, like AnheuserBusch, which may reduce cost. Also, the rise in energy cost has affected
breweries distribution. Unlike Anheuser-Busch which has their own distribution
facilities and trucks, many breweries contract with distribution companies whose
prices depend on the gas prices. So as the price of gas continues to rise,
distribution cost will continue to increase as well.
CORPORATE STRATEGY
Anheuser-Busch has been focusing on increasing their international
presence. Through acquisitions and joint ventures, Anheuser-Busch seeks to
make up for the market share they are losing here in the U.S. due to the increase
in wine and spirits consumption. Anheuser-Busch has developed an aggressive
international growth plan which includes:
1. Maintain Budweiser’s signature taste, which is refreshingly different from
local brands, all around the world.
2. Develop and implement sales tools to drive distribution and service at
retail.
3. Deliver innovative marketing that builds Budweiser’s global image,
including advertising and sponsorships of premier international sports,
music and entertainment events.
4. Maintain a global network of local sales and marketing professionals to
manage the company’s operations in key international markets.
Also, the pending InBev buyout can be seen as a strategic endeavor on
Anheuser-Busch’s part, because this merger will give Anheuser-Busch a bigger
international sales base and give them control over one fourth of the global beer
volume. Even with the recent financial crisis, InBev assures that they have
secured financing through “strong banks” and they are still going through with the
buyout, paying $70 a share.
FINANCIAL ANALYSIS
Financial reports are the way a firm communicates financial information to
its investors. Analyzing financial reports is one of the most important parts of
evaluating a stock and/or company. Here, we are going to focus on analyzing
Anheuser-Busch’s profitability and compare key ratios with the industry ratios.
First, the decrease in price - earnings ratio (P/E ratio) from 2006 to 2007
may give us, as
the investor, lower
expectations for
Anheuser-Busch in
2008. In exhibit 1,
we notice that the
Exhibit 1 (Resource: MarketWatch and Yahoo!Finance)
outstanding shares have been decreasing for the past four years. There are a lot
of different reasons why Anheuser-Busch any choose to do this. AnheuserBusch issued stock to collect money in the past, and now, they think they have
too many shares outstanding. Another disadvantage of having too many shares
outstanding is the bid-ask spread will slow down the market’s reaction.
Exhibit 2 shows the operating income for Anheuser-Busch. From 1998 to 2007,
the most recent ten years, the operating
income did not reflect the growth of revenue.
Exhibit 2 (Resource: Morningstar)
From 1998 to 2003, the operating income growth was steady followed by two
years of declining growth, and then three years of rebounding growth. This tells
us, in 2003 and 2004, Anheuser-Busch had an increase in operating expenses,
but possibly made some cost-saving decisions which have slowed down the
decrease in operating margin..
Exhibit 3 and exhibit 4, show
similar results, sales have
continued
to increase over the past ten
Exhibit 3 (Resource: Morningstar)
years, and gross margin
increased as well at about
the same rate for most of the
past ten years, but the operating
margin and net margin
decreased in 2004, and have
remained stagnant for the past
Exhibit 4 (Resource: Morningstar)
two years..
From exhibit 2 and
exhibit 5, we found the
return on assets (ROA) and
return on equity (ROE) was
increasing for six years
Exhibit 5 (Resource: Morningstar)
beginning in 1998, and followed by a decline and then flat for the past three
years. This means that Anheuser-Busch’s management team was not efficiently
utilizing assets and equities in the past three years.
By looking at exhibit 6, we notice that the earnings per share (EPS) of
Anheuser-Busch have been higher than its stock price for the past five years.
Thus the market has
underestimated the value of
Anheuser-Busch.
According to this
historical data, we know the
Anheuser-Busch has a
Exhibit 6 (Resource: Morningstar)
relatively harder time with constant
growth. Consider the industrial and
market ratios, this helps us better
understand Anheuser-Busch’s
performance. According to exhibit 7, both
the current and 5 year average ROE are
Exhibit 7 (Resource: Morningstar)
higher than the industry and market.
Return on assets, gross margin %, operation margin %, and net margin % are
lower than the industry but higher than the market. Analyzing this comparison,
Anheuser-Busch is doing well compared to other breweries and doing great
when compared to the whole market.
Thinking about the future, we calculated a 5.31% growth rate by using
revenue from
Quarter 1 and 2 of 2008 and Quarter
1 and 2 of 2007 (Resource:
MarketWatch;
Calculation please sees spreadsheet
attached). Furthermore, we expect
Exhibit 8 (Resource: Morningstar)
the annual growth rate will remain
consistent, so we expect to have $17,573 (million) in revenue at the end of this
year. Over the past ten years, we calculated an average annual growth rate of
4.49%
(Calculation please sees spreadsheet
attached). We found the growth rate for
the recent 3 years
and 5 years are lower than the
10 year average, so we adjusted our
growth rate from 4.49% to 4% which
gives us expected revenue of $20,301 (million)
in 2012.
STOCK VALUATION
There are several options available to an investor trying to value the stock
of a company. The P/E multiple or the stock price divided by earnings ratio is one
method commonly used. This ratio helps identify how much, in terms of dollars,
an investor is willing to pay for one dollar of earnings. Currently, AnheuserBusch has a P/E ratio of $23.97. This is significantly greater than their
competitors. Anheuser-Busch is currently the largest beer producer in the United
States, so it could be that their size and market share are being factored in to
produce the additional premium. Molson Coors, Anheuser-Busch’s closest
competitor, currently trades with a P/E of about $20. The Alcoholic beverage
industry on average has a P/E of $20, therefore Coors is in line with the average
and Anhesuer-Busch is expected to trend toward that average in the future.
Anheuser-Busch is in negotiations at this time with a Belgium company
InBev. An industry leader in Europe, InBev is bidding $70 per share in the current
buyout offer. This has caused the stock price to increase from the mid $40’s to
around the upper $60 range. The market has obviously priced the bid offer into
the stock price to close out any arbitrage opportunities, which would arise from
an investor buying the stock at $40 in the spot market and then receiving $70
from the buyout deal. In recent weeks, the market has been particularly unstable
and large losses have occurred in all major stock market indexes. AnheuserBusch’s stock (BUD) has only slightly fluctuated during this time; however, this
decrease in stock price shows Anheuser-Busch is not completely immune from
the overall market. This small fluctuation may mean that the market is fully
confident in the buyout taking place at around $70 a share. Anheuser-Busch P/E
ratio however suggests a different story.
After further analysis of the stock valuation model, used by Diamond Hill
Investments, Anheuser-Busch has an intrinsic value of $47.20, which is much
closer to the current trading price of close competitor Coors. Coors currently
trades at around $46.96, and has an intrinsic value of $57.34. In this situation,
the intrinsic values suggest buying Coors, which is trading at a discount, and sell
Budweiser because it is trading at a high premium. While this may be good
suggestions, the return received by collecting $70 per share from the buyout
would be greater. If currently owned, holding the stock until the sale is complete
will ensure the higher return at $70 per share.
When using the dividend discount model of valuation, we calculated an
intrinsic value of $21.90. This value is much lower than the current market price,
suggesting that the stock is highly overpriced. As discussed, the additional
premium is due to the $70 per share buyout offer.
While selling the stock now would offer a nice return, a higher return is
possible if you hold the stock until the end of the year. The greater return comes
with greater risk. That risk is associated with the uncertainty of a complete sale. If
you sold today your profit would be realized. If you hold you must wait until the
sale of Anheuser-Busch is complete. It looks like the market is confident that the
sale will happen due to the premium Anheuser-Busch is currently trading at. An
InBev spokesperson said that ‘despite turbulent market conditions the sale is
preceding forward and will likely be completed by the end of the year.’ This
information has helped keep the price around the $70 per share, which is what
the buyout would pay. Information was also released about the financing of the
project. The $50 billion, all-cash deal has already obtained fully-committed
funding from leading financial institutions.
Obviously InBev is optimistic about the project and is powering full steam
ahead. This confidence is being passed onto investors and is also being
reflected in the market even though the price is not what the intrinsic value says it
should be. Some question why InBev is willing to pay such a premium for
Budweiser. InBev believes that a premium is warranted, not merely for the
synergy that would be created, but the notion that the two companies will cut
millions in overhead costs, and produce more together, giving them a larger
market share. The synergy is reported to be cutting costs in the area of $1.4
billion annually.
Whatever the reason, InBev is willing to pay a premium for AnheuserBusch and has certainly impacted the market price per share. This impact proves
that consumer confidence is high that the completion of the sale at $70 a share
will go through.
BULLS VS. BEARS
At any given moment in the stock market, there are people willing to buy
or sell all kinds of stocks. Brokers will advise you to buy or sell the stock by
providing a multitude of reasons. However, the investor will ultimately make the
final decision whether to buy or sell.. Financial markets are complicated because
at any given time it can be a bearish or bullish market. A bearish market occurs
when people are selling stocks as a whole, and a bullish market occurs when
people are buying stocks. Anheuser-Busch is not deeply affected under either
environment. It has a triple A bond rating from Standard and Poors as well as
the same grade from Fitch Rating Agencies. It also pays out a quarterly dividend
which makes the stock more attractive to dividend seekers. Although the
purchase of Anheuser-Busch stock is up to the investor, analysts must take a
look at both sides (Bull and Bear) to determine which is the best choice.
BULL
There are many reasons why Anheuser-Busch should be bought by future
and current investors. Anheuser-Busch is a solid company with a solid
reputation in the United States. Its brand has been strong since the 1800s. They
have over 120 different beverages for people to choose from and this number is
continuing to grow. Anheuser-Busch claims to be the “King of Beers” and surely
is in the United States with almost a 50% market share. However, the United
States is only the second largest beer market in the world. China has the
number one market and rightfully so with a population 77% larger then the United
States. Anheuser-Busch does not have a strong sales base or distribution
network in China. Also, they are becoming weaker in Europe and Russia due to
the popularity of Amstel, Heineken, and Carlsberg. Anheuser-Busch wants to be
a global leader in the beer and beverage industry and they are making strategic
steps towards this.
Recently, InBev has claimed the rights to purchase Anheuser-Busch for a
remarkable $70 a share or $50 billion in an acquisition that would create the
largest brewery in the world. InBev is a Belgium company that has a vast
network of distributors in Europe, China, and Latin America. The merger with
Anheuser-Busch was a shock even to them, but for the high sales price and an
agreement to keep Anheuser-Busch advertising and market strategy the same, it
was well worth it. The new company will offer some 300 different beers and
some members of the Anheuser-Busch board of directors will be moving over to
the InBev board. If approved, not only will Anheuser-Busch be able to claim
more market share, but it will be able to fully saturate China with AnheuserBusch products. The connections InBev has around the world are robust, and
Anheuser-Busch will be able to utilize these to distribute their products
worldwide. China has an ever growing economy and is intrigued with Western
culture. The new company, Anheuser-Busch InBev, will be able to utilize
economies of scale to their benefit. Anheuser-Busch will cut out duplicate
processes and only have one functioning body. For example, InBev will use
Anheuser-Busch’s United States distributing networks for its products and vice
versa. InBev stockholders will vote on the merger on September 29th.
BEAR
Presently, the United States is in a bearish market where most investors
are escaping to US Treasury securities to avoid risk. During this time of volatility,
it would be wise to invest in less risky instruments for a variety of reasons. For
one, the beer industry is only growing at 1% volume per year. At this slow rate of
return, companies will need to invest highly in Research and Development so
that they can increase their return.
Also, the beer and beverage industry is highly competitive with many
players. Recently, MolstonCoors and SABMiller breweries merged to create the
largest brewery in the world, MillerCoors. They have a 30% market share in the
United States and hope to gain more globally. Some other big name competitors
for Anheuser-Busch are Coca Cola, Pepsi, Redbull, Nestle, Fosters and Dr.
PepperSnapple. With all of these U.S and European companies, one can see
why this industry is highly saturated. Due to the stringent competition, major
markets in Europe rejecting Anheuser-Busch’s products. They are supporting
local breweries that represent European tastes. Gaining ground is tough and
most companies are well established which causes major shifts in sales to be a
rare event.
Raw material prices are increasing, causing the cost of beer to rise with it.
Aluminum, barley, hops, glass and oil are the main raw materials in the creation
and distribution of beverages. The costs of these commodities are on the rise
causing Anheuser-Busch to price their products even higher. With these price
increases, consumers are not buying as much and/or fleeing to cheaper brands.
Inflation is currently hitting 5-7% in the United States causing prices to escalate
and the consumers unwilling to bare these price increases.
InBev has some key problems with the funding of the $50 billion needed to
buy Anheuser-Busch. First, it is taking on a large sum to purchase the American
brewery. It will have to raise its debt obligations substantially. Right now, InBev
has secured lines of credit for the purchase from 8-10 different global investment
banks. Second, InBev is going to have to cut jobs at Anheuser-Busch which will
create a stir in the market. It is going to have to cut departments where the two
firms have the same functions. Currently, 15% of Anheuser-Busch’s work force
is 55 or older. Anheuser-Busch is already offering benefit packages to these
people if they will retire early. Unemployment is always an unattractive thing that
an investor looks at when evaluating a company. Lastly, InBev is going to sell
the theme parks and entertainment divisions that Anheuser-Busch owns.
Companies such as, Sea World, Busch Gardens, Discovery Cove Vacations,
Seasame Place Vacations and Adventure Island vacations will be sold to bidders
so that InBev can help fund and raise capital for the merger. These cutbacks
may send a red flag to potential investors that the company may be having
significant troubles with their finances.
RISK & ECONOMIC MOAT
Anheuser-Busch is a stable company with deep roots in the American
economy and stock market. It was founded in 1852 and has been running strong
ever since. Of course there is a certain degree of risk and default risk in any
corporate stock or bond but with Anheuser-Busch, it is minimal. Anheuser-Busch
has several things that set them apart from their competition. One reason for
their economic moat is “Anheuser Busch's costs are far lower than its
competitors. It is able to spread its marketing and administrative expenses over a
larger revenue base, and is powerful enough to demand good terms from
distributors. Its operating margins are over 20%, while Coors has 8% margins
and Boston Beer (which makes Sam Adams) earns a 10% margin. Small
brewers earn even less. Now this margin advantage has two important
implications. This should allow the company to protect its market share. First,
Anheuser's competitors can't afford to significantly lower their prices. This should
allow the company to maintain its profit margins. Second, if there is a price war,
Anheuser Busch should come out a winner. So Anheuser should also be able to
protect its market share. Also important is the company's brand name, which is
extremely strong. Beer drinkers are very brand loyal, and brand preferences
change slowly. When Anheuser Busch starts to lose market share, it has plenty
of time to respond” (Bronstein Report).
Recently, Anheuser-Busch has strengthened its already superior
distribution network. “Intervolve, Inc., the pioneer in providing on demand supply
chain software using web and mobile technologies, announced that AnheuserBusch has certified their E-Commerce solution for A-B distributors. An integrated
part of Intervolve’s Route Accounting System (RAS), the E-Commerce solution
allows distributors to conduct business electronically with retailers, reducing
paper usage and improving operating efficiencies. With the E-Commerce
solution, distributors can streamline the delivery process by transmitting predelivery notices to retailers as well as making the payment process more
simplified through EDI transmission of invoices and electronic funds transfer
information. Intervolve’s solution also automates the communication of price and
promotion information with retailers”
(www.intervolve.com/media/abcertstatus.pdf).
With the new focus of our economy on “Going Green” Anheuser-Busch is
converting all 12 of its U.S. breweries to run on 15% renewable energy by the
end of next year. Anheuser Busch is installing bio-energy recovery systems that
can turn brewery wastewater into fuel for plant operations. The company is
currently bringing the new systems online at facilities in Houston, Texas and
Fairfield, California, with plans to convert nine more breweries in 2009. The
Houston brewery will use bio-gas from a nearby landfill as part of an alternative
fuel plan that, when combined with bio-energy recovery systems, is expected to
provide more than 70% of the brewery's fuel needs. The Fairfield brewery will
supplement its bio-energy recovery systems with a new on-site solar plant that
will provide 3% of the facility's energy needs. The alternative-energy drive is part
of Anheuser-Busch's Blue Ocean initiative, which aims to deliver more than $1
billion in savings through 2010. All 12 of Anheuser-Busch's U.S. breweries
currently recycle or reuse more than 99% of the solid waste from brewing and
packaging processes, according to the company (Sustainable Life Media).
Anheuser Busch is always on the cutting edge to implement new technologies to
help cut costs or to make their products even better.
Lastly, Anheuser-Busch is always developing new products for the
consumer. They want to target a wide range of traditional and nontraditional
adult consumers. Some examples of these are Bud Select, Michelob Ultra and
Bacardi Silver flavored beverages. Many consumers love and follow the
Budweiser brand name and with that power, new beverages will always be in
high demand. Anheuser-Busch's competitive advantages in branding means it
also enjoys pricing power by rolling out small price increases each year.
Anheuser-Busch remains confident consumers will still be drinking beer fifty
years from now, and Anheuser-Busch should profit from this demand
(Morningstar).
INVESTING STRATEGY
As of today, we would suggest that new investors hold on before
buying Anheuser Busch stock. The market is at an all time high for volatility and
investing in any corporate stock has significant risk. However, Anheuser Busch’s
stock does not vary much whether the Dow Jones Industrial Average goes to
either extreme. It is a solid stock and a solid company, and has been for years.
It was even profitable during prohibition when they could not sell alcoholic drinks.
We find Anheuser Busch is a well managed company that still incorporates the
values set out when Eberhard Anheuser founded it. It still has the Busch family
on the Board of Directors and as the CEO. Investors should wait until after the
two companies, Anheuser-Busch and InBev, have voted on the merger to decide
on whether to buy the stock or not. If both companies approve the merger, which
it should happen since there are very few congressional roadblocks, we would
recommend that you buy the stock. InBev will only invest more money into
Anhesuer Busch and push their products into global markets thus increasing
sales and market share.
ANALYST NOTES
July 23, 2008 - Strong Q2 Sales Growth
Anheuser-Busch had strong second quarter sales; however, the rise in volume
and price increases was not enough to offset the rise in commodity costs and
marketing expenses. Brewers all of the country are feeling the current market
crisis. Anheuser-Busch plans to increases their prices once again in Q3.
The introduction of Bud Light Lime and the Fourth of July season lifted AnheuserBusch’s sales to 4.6%. However, the higher commodity cost and marketing
expenses decreased Anheuser’s operating margin down.
The current efforts by Anheuser-Busch to increase operating margins are great in
theory but do not seem to be making the impact they had hoped. Therefore,
shareholders should hold out for the $70 a share from InBev and hope they can
do a better job.
July 14, 2008 – Anheuser-Busch agrees to InBev Offer
Anheuser-Busch has agreed to InBev’s offer of $70 a share. This buyout will turn
Anheuser-Busch into a force to be reckoned with in the beverage industry.
The deal is expected to go through by the end of the year, with a total payout of
roughly $52 billion. This cash payout is good for Anheuser-Busch because InBev
has already hinted at significant cost cuts. Although this is a friendly merger,
there will be a clash of cultures, so InBev will be taking on serious integration
risk.
This merger will make Anheuser-Busch InBev the leading brewery in the world,
something Anheuser-Busch was unable to achieve alone. This means that their
competitors will need to get creative in their efforts to expand their business, both
locally and internationally.
Jun. 27, 2008 – Anheuser-Busch Board Rejects In Bev’s Offer
The board of directors for Anheuser-Busch has rejected InBev’s initial offer of
$65 a share. They feel this “significantly undervalues Anheuser-Busch’s brands,
unique assets, and earnings potential. This may be a strategic move on
Anheuser-Busch’s parts to get a higher bid for InBev.
This is very risky on Anheuser-Busch’s part because InBev may remove their
offer all together and right now their shareholders would be better of with $65 a
share in cash then betting that Anheuser-Busch’s management will be able to
significantly cut cost and expand their international sales base.
Jun. 12, 2008 – Anheuser-Busch under Review
Anheuser-Busch has confirmed that Belgium-based InBev has offered $65 a
share in cash. This merger would mean a complete change in the beer industry.
The board of directors for Anheuser-Busch will be under pressure from their
shareholders to accept this offer because the shareholders currently do not feel
that they can create that kind of value on their own. However, the board could
reject the offer, because there are Busch family members currently on the board
and they would fight to maintain the legacy of their company. Some options
afforded to them are taking on additional debt and paying out a special dividend
to their disgruntled shareholders.
InBev on the other hand could take their offer straight to the shareholders who
we think will be more than happy to accept their offer or they could take their
offer to Anheuser-Busch’s competitor, SABMiller. If they did the latter of the two,
then Anheuser-Busch would be almost completely shut out of the international
market.
Right now it is uncertain what Anheuser-Busch will. They have a few options to
think about; however, we believe accepting the offer would be their best bet.
May 23, 2008 – InBev Buyout of Anheuser-Busch Rumored
Today it was reported that InBev is reportedly in the advance stages of
presenting an offer to Anheuser-Busch at $65 a share.
Due to Anheuser-Busch’s well-known brand and legacy, we know that any
company wanting to make an offer would need to pay a premium. However, with
the stagnant performance over the past several years, shareholders make be
open to a buyout if he over was good.
This merger would be beneficial for both parties. Anheuser-Busch would gain
substantial ground in the international market, making hem the number one
brewery in the world. InBev would benefit from the Anheuser-Brand brand and
legacy in the U.S. However, they do have clashing cultures that may cause a
problem. InBev is run with an iron fist to achieve the highest margins. On the
other hand, Anheuser-Busch is more family-oriented and spends quite a bit on
advertising. If this merger does happen then we think InBev may let AnheuserBusch continue to operate as they have but addressed some areas where the
costs are spiraling out of control.
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