The exchange rate between the dollar and Euro gives InBev a 30% to 35% discount making the acquisition price seem like a great deal for BUD shareholders but an even better one for InBev shareholders. And if the the currency exchange rates shift back over time then all the shareholders win.
This means that Americans will be answering to the Dutch Belgians. If the dollar had gained against the Euro instead of becoming weaker is it possible that Anheuser-Busch (BUD) would have bought out InBev (NV)? If the dollar stays down or drifts lower as seems likely right now look for more M&A activity from abroad.
In the mean time, since 'my pal Warren', is the largest shareholder of BUD through Berkshire Hathaway (NYSE: BRK.A) and supports the deal, will he remain a shareholder of the new company? No doubt this increases the value of Berkshire, but does this set the stage for Buffett to enter the European market in a big way?
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B.
Investment bankers are keeping busy with chemical companies lately. For example, yesterday The Dow Chemical Company (NYSE: DOW) announced a $15.4 billion buyout of Rohm & Haas (NYSE: ROH), which even included an investment from Warren Buffett.
Then today, we got another deal. That is, Ashland Inc. (NYSE: ASH), which is the #1 chemical distributor in the US, has agreed to pay $3.3 billion for Hercules Inc. (NYSE: HPC). The consideration is a mixture of cash and stock. Moreover, Bank of America Corporation (NYSE: BAC) and Scotia Capital will provide the bank financing on the transaction.
Hercules got its start in 1912, as a spin-off from E.I. du Pont de Nemours & Company (NYSE: DD). Now, the company is a major provider of water-treatment chemicals (with a focus on the pulp and paper industries). It's an attractive segment – especially because of the opportunities in emerging markets.
When it comes to a mega M&A deal that involves an old-line company and a founding family, Warren Buffett is on speed-dial. For example, his firm, Berkshire Hathaway (NYSE: BRK.A), provided $4.4 billion in financing for the Wrigley Co. (NYSE: WWY) buyout.
Now, Warren is plunking down some more cash on another big deal: Dow Chemical Co's (NYSE: DOW) $18.8 billion cash purchase of Rohm & Haas Co. (NYSE: ROH). In this case, the contribution comes to about $3 billion (in the form of a convertible preferred structure, which has a nice 8.5% coupon rate). As a result, Berkshire will become Dow's largest shareholder.
Yes, the US economy continues to be bleak and there is lots of fear. But, for long-term investors – such as Warren – this is an ideal time to pick up juicy opportunities.
In fact, this is evidence that the smart money sees lots of value from M&A deals – especially transformative ones. Then again, in order to compete on a global scale, there is a need for economies of scale.
For the most part, Dow focuses on petroleum-based chemicals. As for Rohm & Haas, it deals primarily with adhesives, personal care products, paints and so on. In other words, Dow is trying to find ways to diversify things.
Although, the deal for Rohm & Haas is no slam dunk. It's not easy to make such a transaction in a tough economic environment. Plus, Dow is paying a massive premium – thus setting a high bar for performance.
TheStreet.com's Jim Cramer says its stunning buy of Rohm & Haas will get people thinking about an energy top.
Just when you thought it was safe to short anything, particularly anything with any commodity exposure, Dow Chemical (NYSE: DOW) (Cramer's Take) comes along and inexplicably pays a gigantic amount of money, $78 in cash, for Rohm & Haas (NYSE: ROH) (Cramer's Take)? My first thought was that it must be a joke. That is inconceivable. A hoax. Something perpetrated by frustrated longs to spook the shorts.
I mean, a chemical company? Two chemical companies? Ground Zero for slowing economic activity and raw costs? People unsure if Dow could even pay its nearly 5% yield? I mean, even last night on my show, I made fun of the idea that people are confusing Becton Dickinson (NYSE: BDX) (Cramer's Take), a medical supply company, with a chemical company because it uses resin.
According to The New York Times' DealBook blog, InBev has a significant partnership with Cuba to produce Bucanero beer, the second-largest player in the communist country's market.
In the the beer world, this deal is not very important since the island has a population of about 11 million. Besides, its economy is a mess.
"Government defaulted on most of its international debt in 1986 and does not have access to credit from international financial institutions like the World Bank, which means Havana must rely heavily on short-term loans to finance imports, chiefly food and fuel," according to Global Security Org. "Because of its poor credit rating, an $11 billion hard currency debt, and the risks associated with Cuban investment, interest rates have reportedly been as high as 22%."
The question of what would happen to InBev's Cuban business in the event the takeover of Budweiser is successful is an interesting one. Would the company have to divest the business to comply with the U.S. embargo or not do anything since it is not a U.S.-based company? Maybe the subsidiary could be operated through a non-U.S. InBev business. Regardless, it's a solvable problem from a legal and financial vantage point.
While I have no doubt I have no doubt the Belgian brewer will gladly say "adios" to its small Cuban beer business if that's the price it has to pay to complete its $46 billion hostile bid for Anheuser-Busch Cos., Inc. (NYSE: BUD), public relations is another matter.
Unfortunately, the most serious imperfection that Janjigian uncovers is right on the cover: Buffett's complexion is pasty, his eyebrows could use a good waxing, and he could stand to hit up Procter & Gamble for a couple boxes of Crest Whitestrips.
Like most books on Buffett, this one explains his methodology -- buy easy to understand business and hold forever -- and then, somewhat uniquely, tries to poke holes in some of his ideas. The problem is that most of those holes relate to Buffett's philosophies, but most have nothing to do with the way he manges Berkshire Hathaway (NYSE: BRK.A). There's a lengthy discussion of what the author thinks Buffett is wrong about the estate tax, and he also questions Buffett's insistence that stock options should be expensed upon issuance -- but are those really the ideas that people look to Buffett for?
Those pundits who think guru investor Warren Buffett's time has come and his magic faded away are bolstered by a Bloomberg report that says shares in Berkshire Hathaway (NYSE: BRK.A) slumped some 19% since mid-December. Buffett has been hurt by large investments in both insurance and banks, industries that have suffered tremendously.
Lest you think this short-term lack of performance has swayed investors into looking elsewhere to park their money, many investors are looking at the fall in Berkshire stock as a buying opportunity.
According to Bloomberg, Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management said he'd "put a new client in Berkshire right now. [...] It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon."
With the stock market drop, many contrarian investors think that stocks have hit bottom and are very cheap. Buffett, who is sitting on such a large cash position, may be able to take large stakes in solidly profitable yet beaten up companies.
If he decides to put his cash to work, he has the ability to get deals that happen only once or twice in a lifetime. He may end up providing returns that make his previous track record look just average. For the Buffett investors, the best may is yet come.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/1/08.
Warren Buffett has been pretty vocal about how bad the current downturn will be. The same holds true for billionaire money manager George Soros. He has even testified before Congress to make his concerns known.
Now, Eli Broad, one of the richest men in America, or anywhere else for that matter, says this is the worst economic period of his lifetime. Broad will be 80 soon.
Broad toldBloomberg,``This is worse than any recession we've had since World War II." He does not think the housing market will recover for years and sees a sharp rise in unemployment.
The "billionaire boys clubs" now seems to have formed a consensus, and almost all of it is based on the problems in the housing market. It home sales keep dropping, most of the equity people in the US have built over the last twenty years goes away. If some of these people lose jobs, defaults rise and the matter becomes worse.
You can bet against the very rich, but it is probably not a good idea. They did not become fabulously wealthy by being stupid.
Douglas A. McIntyre is an editor at 247wallst.com.
So far, we had InBev putting in the offer and Anheuser-Busch taking its sweet time to reply while trying to thwart the offer by talking to Groupo Modelo. If Anheuser can manage to buy the remaining 50% of Modelo, it would be too big for InBev to swallow. Thursday, though, Anheuser finally replied. Unanimously, no less. I wonder if somewhere around that boardroom full of directors, one at least represented the interests of BUD's second largest shareholder, Warren Buffett's Berkwhire Hathway (NYSE: BRK.A).
In response, InBev said it might ask Anheuser shareholders to unseat the whole board. InBev filed suit "seeking a judgment to confirm that shareholders acting by written consent could remove all of Anheuser's directors without cause." I'd say they might even have cause. The $65 per share offer represented a 35% premium at the time. What's so "financially inadequate" about that?
Well, as Anheuser Chairman Patrick Stokes said, the offer undervalues the Bud Light and Budweiser brands, which he calls iconic. Whatever he calls them, they are the top two selling beer brands in the world. He also said InBev undervalues BUD's growth prospects. Well, if Anheuser could restructure on its own, it should have done so by now and not wait until it was up against the wall with its shareholders. The plans it has and wants to put in place will take a while to bear fruits no doubt.
As InBev has stated, it'd rather take over BUD under friendly terms (a bit of an oxymoron there, but that's the business world). Otherwise, it could either take the tender offer directly to shareholders or get into a fight similar to that Icahn has on his hands with Yahoo! Inc. (NASDAQ: YHOO)'s board, which may not be pretty. Replacing a whole board for a new slate can, and will, get ugly. Or it can do both.
If InBev decides to play nice after all, it may have to raise its bid. Maybe they should all chill and drink a Molson (NYSE: TAP). Things will look better after a few...
InBev, the Belgian mega brewer, has told the King of Beers that it won't wait forever for it to make up its mind about whether to accept its unsolicited $46.3 billion offer. In the third and probably not the last letter to Anheuser-Busch CEO August Busch IV, InBev CEO Carlos Brito points out that his company's offer, which represents an 18% premium on its all-time high in 2002, is a generous one.
"The market reaction to our proposal has been extremely positive," Brito writes. "We believe this confirms our view that our proposal is the best way to achieve this transformational combination for all constituents."
InBev has already lined up financing for its $65 per share offer and has even paid about $50 million in commitment fees to its bankers. Budweiser's long-time headquarters in St. Louis will be maintained as will its senior management team. It does not get any better than this for a company about to be acquired.
On Friday, the board of Anheuser-Busch Cos. Inc. (NYSE: BUD) met and discussed the $46.3 billion unsolicited bid from rival InBev NV. However, there was nothing announced to its eager shareholders.
But, hey, why speed things up? Might as well keep InBev guessing, right?
And, there's much for the rumor mill to chomp on. For example, Carlos Fernandez said he has resigned from Anheuser's board. He is the CEO of Grupo Modelo, which is half-owned by Anheuser.
One possibility is that Anheuser will buy the rest of Grupo, making it tougher for InBev to pull off its buyout. So, does the resignation mean that Anheuser and Grupo are talking about such an arrangement?
It's really tough to tell. Perhaps Grupo is actually talking to InBev? After all, it looks like Grupo wants to remain independent.
Yet, all this stuff seems more of a sideshow. The fact remains that Anheuser can't ignore InBev and is under lots of pressure to sell out (especially in light of its sluggish operating performance over the past few years).
Actually, Adolphus A. Busch IV sent a letter to Anheuser's board urging negotiation with InBev to get a deal done. He's the uncle of the CEO, August A. Busch IV.
Finally, there is another interesting dynamic: Warren Buffett. His company, Berkshire Hathaway (NYSE: BRK.A), owns 5% of Anheuser's shares. No doubt, it should be interesting to get his views on the matter.
Overnight, Belgian newspaper De Standaard wrote that, based on its sources, Warren Buffett backs an InBev buy-out of Anheuser-Busch (NYSE: BUD).
Is it any wonder? BUD can try to greatly improve its earnings on its own. With 50% of the US beer market, that may be hard. It can hope that buying the piece of Mexican brewer Grupo Modelo that it does not already own will help profits. More likely it will increase debt or dilute current shareholder.
BUD's problem is that its shares may never see $60 again. They have risen above that on the InBev offer. A look at the company's long-term shock chart shows it has never been this high before.
If Buffett makes his backing of the InBev offer public, most of the BUD investors are likely to follow. He will have done all of them a favor.
Douglas A. McIntyre is an editor at 247wallst.com.
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.
This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.
Warren Buffet has placed a bet that a group of top notch hedge funds cannot beat the returns of an S&P 500 index fund, net of fees, costs and expenses, over the next 10 years.
On the other side of the bet is Protege Partners, a firm that makes its living finding the world's best hedge funds for its clients.
Under the terms of the deal, Protege picked five top notch "fund of funds" hedge funds. It is betting that the average returns of these elite funds will beat the returns of Vanguard's low cost S&P 500 fund.
The winner gets $1 million. Both sides have agreed to donate the proceeds to charity.
I have been following General Electric (NYSE: GE) for years, believing it was a sadly underperforming stock with high quality businesses but a lackluster management team who at least from outward appearances are just caretakers. They have added almost no shareholder value in ten years in the form of stock appreciation and in fact have gone down lately, as the chart indicates.
Although I have been interested in the stock, I was always able to find something more compelling and I always wanted a bargain. When it was $40, I had a buy order in at $36, then lowered it to $34, then $32, and finally $30, where we bought in on Friday. Today it touched a 52-week low of $29.78 but is trading over $30 as of 2:30. (UPDATE: closing price $30.33 up $0.27, +0.90%)
We have posted numerous articles about the acquisition of Anheuser-Busch (NYSE: BUD) by InBev (NV) and it now looks like the deal has been done at a price of $70 per share. However, what made this deal work for InBev might have been that the dollar has fallen so far.
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This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can. 
I have been following 
Comfort Zone Investing: Exploit volatility with constant dollar investing
Merck earnings preview: No miracles expected
Apple reports Monday -- buy AAPL before earnings?
