InBev Buys Anheuser-Busch: Morningstar's View:
InBev's purchase of Anheuser-Busch isn't without risk, but will change the global beer market in a big way.
InBev + Anheuser-Busch: Results of the Deal
Anheuser-Busch InBev will control roughly one fourth of global beer volume. Anheuser-Busch shareholders will receive $70 per share in cash in a transaction that is expected to close by the end of the year. The $52 billion jumbo deal values A-B at around 12.4 times earnings before interest, taxes, depreciation, and amortization, which we think is fair, considering A-B's stand-alone growth profile. Also, the deal price represents a 27% premium to the stock's all-time high of $54.97 in October 2002. Current InBev CEO Carlos Brito will serve as CEO of the new company, and the existing board of directors at InBev will remain with the addition of two seats for Anheuser-Busch, one of which will be filled by current A-B CEO August Busch IV.
InBev + Anheuser-Busch: Potential Risks of the Deal
Aside from the hefty premium they will receive for their shares, we think A-B shareholders should be happy that the deal is all cash, as we are cautious about the integration risks for InBev. As wrote back in May, an InBev/A-B combination could lead to a serious clash of cultures. Also, to achieve the cost synergies InBev proposes ($1.5 billion over three years), there will need to be significant cost cuts, which will probably include significant workforce reductions. Although this is a friendly merger, we don't think the employees of A-B and the people of St. Louis are cheering for the deal. InBev will need to proceed delicately, especially with key marketing and distribution management, or risk harming the top line. As such, we think A-B shareholders should be happy to leave the integration risk to existing InBev shareholders.
InBev + Anheuser-Busch: A New World Order in Global Beer
From a competitive standpoint, this transaction completely changes the global beer landscape. SABMiller, which will lose its number-one position in the world to the new company, will have to think of A-B as an entirely different competitor in the United States and will be less powerful internationally. We think this puts added pressure on SABMiller to come up with its own acquisitions to build greater international presence and enhance its sales. We think Molson Coors is a likely candidate in this regard, especially given the two companies' existing joint venture in the U.S. In the near term, A-B InBev will be focused on the merger integration and possibly the sale of certain A-B noncore assets. Longer term, however, this new combination will be an industry behemoth that can outspend, outmarket, and outsell any other beer company on the planet. Anheuser-Busch InBev will truly be the king of beers.