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Anheuser-Busch Deal Likely, Say Analysts

Brewer Anheuser-Busch has virtually "no choice" but to combine with rival Belgium-based brewer InBev S.A. to raise its global profile, a Citigroup analyst said on Monday.

In a conference call with investors, analyst Bonnie Herzog and two other Citigroup beverage analysts said there is now a 70 percent chance that the world's two biggest brewers will combine in some form within the next few years. Earlier in the day, the analysts upgraded Anheuser-Busch shares to "Hold" from "Sell" on the increased possibility of a deal.

Herzog said the timing could be right since she believes the company's Chief Executive August Busch IV, who took over in December, is looking to regain a global leadership position. Anheuser-Busch used to be the world's largest brewer, but InBev has taken over that spot.

"They have no other choice, quite frankly, in my view," Herzog said on the call.

Anheuser-Busch Chief Financial Officer W. Randolph Baker said the company's policy is not to confirm, deny or speculate on "rumors of potential investments, acquisitions, mergers, new business partnerships or other transactions."

InBev did not return calls seeking comment.

The possibility of a combination between Anheuser-Busch and InBev first came up in February after Brazilian business newspaper Valor Economico reported that InBev had held preliminary merger talks with the U.S.-based brewer. The newspaper cited an unidentified source which it said was close to leading Brazilian investors.

The two companies have partnered before in a variety of ventures. In February, Anheuser-Busch became the exclusive U.S. brewer of InBev's beers, including Beck's, Bass and Stella Artois. And last May, Anheuser-Busch bought InBev's Rolling Rock brand for $82 million.

The InBev brands were part of an Anheuser-Busch plan to expand its brand portfolio to try to recapture some of its market share. As the maker of Budweiser, Bud Light and other primarily domestic brands in the U.S., Anheuser-Busch has seen its customers lured away by imports and craft beers.

Other domestic brewers have already looked to international partnerships to help boost stock prices and compete with imports and crafts. Shares of both Molson Coors Brewing , which brews Coors Light and Blue Moon, and SABMiller , which makes Miller Light and African beer Castle Lager, have performed better this year than Anheuser-Busch.

The Budweiser brewer's shares have underperformed shares of Molson Coors Brewing by 15 percent and have underperformed SABMiller London shares by nearly 10 percent.

Analyst Philip Morrisey said if Anheuser-Busch wants to branch out, InBev may be the best option since other global powerhouses like Heineken are either not up for sale or are out of bounds due to regulatory obstacles. If Anheuser-Busch were to attempt a deal with SABMiller, meanwhile, the Federal Trade Commission may nix the plan since the Miller brand and the Budweiser brand both control a large amount of the market in the U.S.

Morrisey said InBev, meanwhile, would be interested in the "substantial" cost savings that could result from a combination with Anheuser-Busch. The analyst put that cost savings figure between $4 billion and $10 billion.

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