When I first heard the rumors several weeks ago that Inbev was considering making a play for Anheuser Busch, I thought to myself, “no way, ain’t gonna happen.” So you can imagine my surprise at Inbev’s unsolicited bid on Wednesday for the largest brewer in the U.S. (see Inbev Makes Bid for Maker of Bud).
It’s not that I thought that such a marriage couldn’t work – there are some real distributional, and even some operational, synergies here. It’s not that I thought AB was too big to be bought, as many firms have the wherewithal. I just thought that in the current economic environment a deal of this size would be unlikely in the absence of the buyer putting up a significant amount of cash. After all, $46B is a non-trivial sum of money, and from all accounts Inbev plans to finance all but about $6B with debt. If the accounts I read in the press are correct, that makes for a 13% downpayment. Hey Inbev, it’s not 2005 anymore!
There are other forces working against Inbev in this deal. For one, it seems the Busch family does not want it to happen. It’s likely that they will take whatever measures they deem necessary to try to block it (witness their courtship of Modelo – see AB Approaches Modelo to Block Inbev). Add on top of that the newfound protectionist sentiment in the U.S. toward AB (see Hands Off Our Bud or Politicians Oppose Bid). I gotta tell ya, I never realized that AB was a source of national pride, and before yesterday I had no idea that brewing was considered a strategic national industry.
For all these reasons, and despite the fact that I think it’s not a half-bad combination (especially for BUD shareholders who would receive a 20-30% premium for their shares since rumors first circulated), I think this deal faces significant headwinds.
So my priors still haven’t changed – no way, ain’t gonna happen.