InBev Bid for Anheuser May Leave Bitter Aftertaste

InBev Bid for Anheuser May Leave Bitter Aftertaste

 

InBev Could Run Risk of Alienating Workers, Politicians

 

Investors have been giddy about the prospect of InBev NV buying Anheuser-Busch Cos., but it could be a lot harder for the Belgian company to swallow the King of Beers than many imagine.

A host of factors could derail a bid: the cultural differences between the two brewers; potential unrest from Anheuser employees and distributors; and even protests by politicians over foreign ownership of a U.S. icon during an election year.

"We would like to see it remain an American company," says Teamsters Vice President Jack Cipriani, who is director of the union's brewer and soft-drink workers' conference. "It doesn't seem that employees fare well when foreign suitors buy American breweries."

The union, which represents about 7,500 of Anheuser's 30,000 employees, could turn to its own political ally: Illinois Sen. Barack Obama, the likely Democratic presidential nominee whom the union endorsed earlier this year.

InBev, the maker of Labatt Blue and Beck's, is studying a possible takeover bid, people familiar with the matter say. Anheuser's management is cool to the idea of any deal with InBev, people close to the St. Louis brewer say, which could require InBev to pay a hefty premium. A deal probably would top $45 billion, or $63 a share, analysts say. Anheuser shares were up 14 cents to $56.75 Tuesday in 4 p.m. New York Stock Exchange composite trading. In Brussels, InBev shares were at €47 ($74.13), down 90 European cents, or 1.9%.

Wall Street analysts say Anheuser is likely to strenuously resist any approach by InBev, whether friendly or hostile, which in turn could raise the price for the maker of Budweiser to as much as $70 a share. Anheuser and InBev declined to comment.

If the price went that high, InBev would need to wring steep cost cuts out of Anheuser to make the combination financially viable, possibly slashing expenses by more than $1 billion over a few years. That could mean sharp reductions in Anheuser's marketing budget and large numbers of layoffs, analysts say.

Though Anheuser's board of directors has been loyal to the Busch family, the board also includes independent directors with records as deal makers, including former AT&T Inc. Chief Executive Edward E. Whitacre Jr. and former J.P. Morgan Chase & Co. Chairman Douglas A. Warner III. Their presence, coupled with shareholder pressure to accept an offer at a high premium, could help InBev overcome board opposition if it decides to pursue a deal.

InBev, the world's second-largest brewer by volume after SABMiller PLC, is no stranger to buying companies and then making deep cost cuts. That approach could be risky at Anheuser, a 150-year-old company whose success has been built partly on paying top dollar for everything from malted barley to television ads.

Anheuser thinks "if it's good to send one marketing person to a meeting, it's even better to send five," says Harry Schuhmacher, editor of the industry newsletter Beer Business Daily.

Bill Pecoriello, an analyst with Morgan Stanley, says if InBev slashed Anheuser's marketing budget, it could hurt sales of its big U.S. brands, such as Bud Light and Michelob Ultra. Unlike many developing countries where InBev operates, the U.S. beer market is growing slowly and competition is brutal, he adds. That means marketing dollars spent on billboards, bar posters or store displays can be crucial to wooing drinkers.

Carlos Brito, chief executive of InBev, of Leuven, Belgium, is an aggressive cost cutter who may be willing to take his chances with Anheuser.

"They look at Anheuser-Busch and they see a lot of waste," says Marc Leemans, an analyst with Bank Degroof. "Their focus...will be to get rid of the fat."

InBev's tough approach with its unionized work force in Belgium has triggered protests and strikes over longer work hours, layoffs and plans to shut one of its main breweries. The company's response has been to seek compromise, except in the area of cutting jobs. InBev has laid off more than 350 people in five European countries since 2004.

Marianne Amssoms, an InBev spokeswoman, said Tuesday that the total number employed by InBev has risen over the years. She also said the company "never fails to support our leading brands in a way that benefits the consumer." InBev is more efficiently managed than Anheuser, says Anant Sundaram, a finance professor at Dartmouth College. InBev's operating margin is 27%, versus 17% for Anheuser.

In an election year, the transaction could become a political flash point. The economic slowdown and job losses have prompted candidates to question unfettered free trade and outsourcing. A takeover of the biggest U.S. brewer could lead to a popular outcry.

To blunt political opposition, InBev might try to make a takeover more palatable, such as by naming the new company Anheuser-Busch or putting members of the Busch family on the board. A combination of InBev and Anheuser would be unlikely to raise antitrust concerns because InBev has a tiny share of the U.S. market and Anheuser imports and markets about 20 of InBev's brands.