A $47 BILLION Bud? That's What InBev Will Pay

The rockin' huge news of the day--sorry, I'm late posting on it--is Belgian beer behemoth InBev's unsolicited bid to buy out Anheuser-Busch. (As penance, there's some value-added analysis below.) The deal:

BRUSSELS -(Dow Jones)- InBev (INB.BT) wants to turn Budweiser into its "global flagship brand" as part of the Belgian brewer's plan to buy Anheuser-Busch & Co. (BUD) for $47 billion, InBev executives said on a conference call Thursday.

The merger, which values of Anheuser at $65 a share, would create the first global beer company, combining InBev's sales in Western Europe, Latin America and Canada with Anheuser's dominant position in the U.S. market.

InBev, maker of Stella Artois, Beck's and Brahma, will use its global distribution networks to boost sales of Budweiser, the iconic U.S. beer, in places such as China, Canada and Latin America, InBev executives said on the conference call. The goal is to capitalize on a growing demand for imported beers that can be sold as premium products.

"Budweiser is known by consumers but it's not available in many cases," said InBev chief executive Carlos Brito.

Brito and Chief Financial Officer Felipe Dutra downplayed the role that cost- cutting will play in the merger, focusing instead on opportunities to boost sales of Budweiser and other Anheuser brands outside the U.S. and InBev brands in the U.S. The merged company won't close Anheuser's U.S. breweries, which Brito called "highly efficient."

First: who the hell is InBev? InBev is the result of extremely aggressive growth by a Belgian company called Interbrew that started gobbling up cool little breweries back in the late 80s--including a whole raft of venerable and exquisite Belgian labels. It's big national brand was Stella Artois, which it started to turn into an international brand during this massive growth spurt. In 1995 it bought Labatt's and later snapped up England's Bass (2000) and Germany's Beck's (2001). The big change came in 2004, when it bought Brazil's AmBev (becoming ImBev) and became the world's second-largest brewery--after A-B. Now it has over 200 brands, including large holdings across Europe. It seemed to be very successful at snapping up post-Soviet breweries, too, and has a number of labels from the Czech Republic, Ukraine, Russia, etc.

Business Aspects of the Deal
For A-B, it probably means "streamlining"--creating efficiencies by cutting jobs and consolidating management. This is a regular feature of the now-familiar InBev method. It means taking A-B international, which brewery analysts criticize Bud for not having focused on. The Budweiser label may enjoy greater international fame, but residents of St. Louis are not happy:
Calling the offer to buy Anheuser-Busch deeply troubling, [Missouri Governor Matt] Blunt conceded that he lacked any immediate way to block such a sale. He called the St. Louis-based brewer “a great employer, a great corporate citizen and the maker of great products that are enjoyed in Missouri and around the world.”
For other US macros, it's terrible news. SABMiller was courting InBev and now has to confront a titan with twice the institutional advantage. As many of you know, macros have flatlined in recent years, leading to consolidation as the mini-macros (Miller and Coors) try to compete with A-B. This would further weaken their position--and probably lead to further consolidation.

Craft Aspects of the Deal
This could be a biggie, and we dive now into fully speculative waters. As the hops and barley crisis have shown, small breweries can be seriously affected by brands against whom they don't compete. The hops markets, in particular, are global, so the Lucky Labs of the world have a stake in this thing. Craft breweries have left juice to swing deals for hops, and many of the little guys are left on the outside. With InBev controlling some massive percentage of the world's beer production, this seems like a scary proposal.

Then there's the institutional advantages afforded by having such a huge stake in the market. Recall my recent post on distributors--InBev's bid would make A-B distribution deals all that much sweeter. In markets on the West Coast this won't be as big a deal as it will in smaller markets.

Finally, what about breweries in other countries? If InBev is trying to increas Bud's reach internationally, that means aggressive marketing that will overwhelm many small, venerable national brands elsewhere. One of my favorite things about international travel is sitting down with the local beer and seeing how regional tastes have evolved to suit the culture and climates there. The Buddification of the world is a nasty thought.

Local Aspects of the Deal
Bud has a stake in Widmer and Redhook--two locals who are in the process of merging right now. My guess is that it won't much affect their operations or the merger. A-B's stake is a minority one, and they haven't been involved in day-to-day operations. But I sent an email to the brewery, so I'll report back when I hear.

Could be storm clouds passing, but all things considered, I don't see any upside in this development.

[Update: No comment from Rob Widmer.]