The battle for Anheuser Busch appears to be over. AB accepted a an offer at $75 a share from Belgian brewer InBev. I should say Belgian headquartered brewer InBev, since the brands produced by the company include German Beck’s, English Bass Ale, and a slew of Brazilian and other Latin American beers.
As part of the deal, InBev has promised not to close any of AB’s twelve US breweries, and to keep the US headquarters in St. Louis. These promises, of course, are worthless. InBev will do what it pleases with the US assets once the deal is closed. However, they probably will keep the headquarters in St. Louis and all the breweries open for now. After all, you have to have the headquarters somewhere, and with transport costs rising, keeping production close to your markets makes sense.
As the deal moves to closing, it is possible to make out who some of the winners and losers are going to be. The people least affected by the merger will be Budweiser consumers. InBev will almost certainly make no changes to the AB products.
Winners
Anheuser-Busch Stockholders: These guys are the big winners. Six months ago AB stock was selling for around $45 a share. Now they are getting $70 a share. In cash. None of this business of you get so much cash, and so much InBev stock. The green folding stuff. That’s a 55% return on your investment. Warren Buffett owned around 5% of Anheiser-Busch. The guy looks more like a genius than ever. Banks and real estate are collapsing around our ears, and he sticks in his thumb and pulls out a plumb. Amazing.
Anheuser-Busch competitors: InBev and AB have promised annual savings of $1.5 billion a year. To do that, there are going to be big layoffs (see Losers, below) and a reduction of advertising. Aggressive cost cutting causes turmoil in an organization. As InBev assimilates AB that will be a massive distraction within the AB ranks, at the same time the marketing budget is getting chopped. Look for Anheuser-Busch to loose market share to their rivals.
Losers
InBev stockholders: InBev stock has dropped about 10% from just before they announced their off for Anheuser-Busch to today. InBev is doing the deal to continue growing their earnings. But paying off the $52 billion they are borrowing will reduce their earnings in future years, unless they can find synergies or cost savings. There are not a lot of synergies in this deal. InBev is not going to sell more Michelob in Europe, and Americans are not going to switch to Stella Artois from Miller Lite. Unless the management of Anheuser-Busch was incompetent, the cost savings (read: layoffs) will cause them to lose market share. Somehow I don’t think that Belgians are going to be better at managing the US beer market than Americans. If you want proof, check out the new Stella Artois commercials running on TV. Bottom line, InBev earnings go up in 2008, then stagnate or decline in 2009 onward.
Anheuser-Busch Middle Management: This is where the ax is going to fall. As part of their defense against the takeover, Anheuser-Busch has already announced a plan to cut 10% of the salaried workforce. InBev will use that as a starting point. Adding insult to injury, the career paths of the survivors in headquarters just got cut short, since the top jobs will now be filled by Belgians on what Europeans will consider a hardship tour. The next six to eighteen months will have the staff more focused on spreading rumors, backstabbing, and running for cover than on reading the market and building their brands. The beneficiaries of this bloodletting and attendant confusion will be AB’s competitors (see Winners, above).
St. Louis: As the home of Anheuser-Busch, St. Louis benefited enormously. Not only did AB have a huge payroll, but they were a soft touch for every philanthropic organization in their hometown. Going forward, not only will the payroll be smaller, but approvals on community support will have to be approved in Belgium, and the decision makers in Brussels will be a lot more focused on bringing the money home to support their favorite causes.
There are winners and losers in every deal. One thing that’s not going to change, however, is the beer. Love it or hate it, Budweiser is still going to taste the same this time next year.
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2 comments:
You're right about competitors being winners in the deal. When it's completed, suddenly Boston Beer Co. becomes the largest American beer maker. Not bad for what is (sort of) a 23 year old company.
The maker of Sam Adams plays marketing games just like everyone else. If you watch their TV commercials, their employees have Bahston accents so thick you can cut them with a knife. "I always pahk my cah in Hahvard Yahd before I go to wohk at Bahston Brewing."
What they don't tell you is that their brewery is actually located in Cincinatti!
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