Warren Buffett: The decider on InBev's bid for Anheuser-Busch?

Posted Jun 15th 2008 3:40PM by Tom Taulli
Filed under: Berkshire Hathaway (BRK.A), Anheuser-Busch InBev (BUD)

There aren't many defenses to InBev's mega $46.3 billion unsolicited bid for Anheuser-Busch (NYSE: BUD).

Though, there are is one interesting option: the "scorched earth" approach. Essentially, this is when a company takes a transformative move -- such as a huge dividend or a major acquisition -- to make itself unattractive. Yes, it's brutal and shareholders don't like it. But, it does happen.

In the case of Anheuser, it may decide to make a bid for Grupo Modelo, which is the largest beer company in Mexico (and controls the Corona brand). In fact, ~~Grupo Modelo~~ Anheuser already owns half the company's shares and it looks like talks are already in progress (according to a report in the Wall Street Journal, which is a paid publication).

The problem: basically, Grupo Modelo might not want to sell out. If anything, the company may see the InBev's mega deal as a way to buy back the 50% stake from Anheuser.

But, interestingly enough, Warren Buffett may be the ultimate power broker. After all, his firm, Berkshire Hathaway (NYSE: BRK.A) owns 5% of Anheuser. And, according to a report in the Guardian, it looks like Buffett is going to meet with August Busch IV, who is the CEO of Anheuser.

I'm sure it will be an uneasy conversation, since it looks like Busch wants to keep his company independent.

On the other hand, Buffett wants to make a buck for his shareholders. After all, Anheuser shares have been languid for seven years or so. Plus, the company hasn't been aggressive with its growth strategies, and the cost structure is fairly bloated.

In other words, Busch will need to have some good arguments for the Oracle of Omaha.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Tags: Anheuser-Busch, Berkshire Hathaway, Bud, Grupo Modelo, InBev, inthenews, Warren Buffett

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Reader Comments (Page 1 of 1)

6-15-2008 @ 5:58PM

equalls42 said...

It may seem strange to bring politics into this, but Republicans need Missouri this Fall if McCain has a chance to win. If AB and/or the Administration doesn't find a way to keep AB an American company they will lose Missouri. Period. The weak dollar and the policies of Bush will be blamed regardless of the real reasons BUD was lost. They can't afford to let this happen.

6-15-2008 @ 6:04PM

Willie in Kansas said...

The biggest part of Anheuser's goodwill is the fact that it is in American Hands. I don't know if being acquired by a Belgian firm will damage its image. If Anheuser is acquired by InBev, I can see this deal going the same way Chrysler had with Daimler-Benz. Once, they're through with you; you're dumped after a good mauling. So, if stakeholders want to take that chance, it would be a great risk. No one remembers the Bull or Schlitz anymore. If inBev fails in capitalizing Budweiser's share, we are going to loose a great American Brand.

6-15-2008 @ 6:17PM

Kent said...

"Auggie" Busch understandably will do everything he can to keep InBev out of the picture. Immediate thought I had besides the writer's "transformative move" (I call it, "poison pill") observation is to initiate a stock buy-back plan. But after reviewing their cash-flow position, it'll be terribly difficult for AB to consider this strategy. For a company of their size, their cash position is quite low (+$600 million).... I doubt GM would consider a merger either just to proect AB. Tough situation. I will be following this development closely.