6/12/08

InBev Makes $65/share Offer for Bud

I wondered the other day whether the rumor that InBev, brewer of Stella Artois and Beck's, would make an offer for Anheuser Busch (BUD) was true, and thought it unlikely. I was wrong. After market close, InBev offered $65 a share for the American brewer, which had closed at $58.35. BUD was up about 7.5% in after hours trading, around $62.7 a share.

What now? Tom Pirko, president of Bevmark (a beverage advising firm, is of the opinion that negotions will take the offer up to $70 a share, with $75 being the maximum.

Warren Buffett's Berkshire Hathaway (BRK.A & BRK.B), which owns 4.99% of BUD, stands to make a tidy profit. He always seems to have his money in the right place. Is Kraft (KFT) then a good buy?

What Might Stop the Deal From Happening

The Busch family is said to be against the deal. Although they do not enough shares to mount much of an opposition, they might sway other shareholders. Since Budweiser is an iconic American brand, there is some general opposition to the deal as well, as InBev is a European company. The size of the resulting company, if the deal is completed, might get the anti-trust regulators involved. This slim possibility would also prevent the deal from happening.

Another possiblity that might prevent the deal is that BUD's board of directors decides to buy the rest of Mexican brewer Modelo (it already holds a 50% stake). It's pretty much the only corporate action they can take to prevent InBev from buying BUD. This is also supposed to be a very slim possibility. Finally, as was my reason for thinking the rumor was untrue, InBev might not be able to borrow so much money ($46 billion at the current offer price) in this tight credit environment.

What if the Deal Doesn't Happen?

First, BUD's share price will probably fall. Second, as long as it's not lack of financing that kills the deal, InBev might go after SABMiller (maker of Pilsner Urquell, Miller Lite, and my favorite, Grolsch). SABMiller seems very receptive to this potential $44.25 billion deal.

If the BUD deal doesn't happen and you think InBev still wants to buy something, you could try buying SABMiller shares. The stock is listed on the London Exchange. In the US, it trades on the Pink Sheets. Another way to benefit from InBev buying SABMiller would be to own Altria (MO), the tobacco giant, which has around a 30% stake in SABMiller.