InBev May Need to Bid Higher for Bud

Belgium-based brewer InBev should have no trouble raising funds for its $46.3 billion bid for top U.S. brewer Anheuser-Busch, but it will probably need to pay more in to secure the deal, analysts told CNBC on Thursday.

InBev offered $65 a share for Anheuser , the maker of Budweiser, a more than 11 percent premium of Anheuser's closing price on Tuesday and 24 percent above the price before reports of a possible bid emerged last month.

AP

"We respect the Anheuser-Busch board a lot ... we admire them a lot and we think that the business rationale is very strong," InBev Chief Executive Carlos Brito said in a video statement on InBev's website.

Brito said the new company would retain top managers and board members from both sides, suggesting InBev was looking for a friendly merger of equals rather than a hostile takeover. "The combined company would be run by the combined entities," he said, without divulging whether he would seek to head the new beer behemoth himself.

Despite the fact that the deal would be the biggest ever alcoholic drinks takeover, InBev should have no problem raising the money, Trevor Stirling, senior research analyst for European beverages at Sanford Bernstein told "Squawk Box Europe." It's also unlikely another brewer or beverage company would come in and try and hijack the deal, he added.

"I don't think they would have gone public with this if they didn't have reasonable comfort from the banks," Stirling said.

"This company has a very good track record in paying off its debts and very strong cash flows and clearly the bankers feel comfortable about what's being proposed," he added.

InBev's brands include Stella Artois and Beck's. Anheuser dominates the U.S. beer market with a 48.5 percent share.

The offer could be just an opening step in negotiations, Christoper Gower, senior equity analyst at MF Global told "Worldwide Exchange." "I think they will probably settle above $70 (a share)," Gower said, citing the precedent created by the bidding war in the Scottish and Newcastle acquisition by Carlsberg and Heineken.

Anheuser, the maker of Budweiser and Michelob, which counts Warren Buffett's Berkshire Hathaway as its second-largest shareholder with a 5 percent stake, saw its shares jump more than 7 percent to $62.73 after-hours on Wednesday.

InBev shares closed 6.2 percent higher at 50.2 euros ($77.31) in Belgium while Anheuser-Busch surged more than 6 percent in New York trading.

"Friendly Combination"

Belgium-based InBev, formed by the 2004 merger of Belgium's Interbrew with Brazil's AmBev, said it would "like to engage in a dialogue with the goal of consummating a friendly combination".

St. Louis-based Anheuser said its board of directors "will evaluate the proposal carefully and in the context of all relevant factors, including Anheuser-Busch's long-term strategic plan", and make a determination regarding the proposal "in due course."

The two brewers already have deals whereby Anheuser distributes InBev beers including Bass Pale Ale, Hoegaarden and Leffe in the United States and InBev distributes Anheuser beers in Canada.

The move will offer good value to Anheuser shareholders, Stirling said. "I think the price is a really good one," he said. It will also increase the combined company's profitability, since InBev "has a good track record in increasing profitability in mature markets."

The bid is unlikely to be challenged by a rival offer, since "the global brewing giants are all occupied or conflicting," according to Stirling.

But Anheuser-Busch will probably fight to get the price up, especially in an election year when protectionist rhetoric is likely to increase.

"I think it's going to take a few weeks before we get a dialogue established with the two players at the same table," Gower said.

There have already been arguments against the deal, saying it would cost American jobs and end American ownership of an iconic brand.

Missouri Gov. Matt Blunt said Wednesday he opposes the deal, and the Republican directed the Missouri Department of Economic Development to see if there was a way to stop it, the Associated Press reported.

But shareholders are likely to look at the advantages of a merger, such as the possibility of U.S. products to be sold in Europe and Asia and the benefits of cost cuts, Gower said.

"The way the markets are at the moment … I think the investors will take a cold, hard look at the proposals and say in this environment owning these shares could make me a lot of money," he added.

Industry Consolidation

The beer industry is undergoing a wave of consolidation, with Scottish & Newcastle agreeing to be broken up by Carlsberg and Heineken and SABMiller and Molson Coors Brewing agreeing to merge their U.S. operations.

SABMiller, the world's largest brewer, said a link-up between InBev and Anheuser-Busch would not dramatically change the global brewing competitive market, confirming analysts' assumptions that the deal is unlikely to face legal hurdles from competition authorities.

"We do not think this changes the competitive landscape dramatically given Anheuser-Busch's small presence outside the United States," an SABMiller spokesman told Reuters.

For most of the last century and a half, since Adolphus Busch, a German immigrant, married Lilly Anheuser and went to work at her father's brewery, the U.S. brewer has been led by members of the Busch family.

In an effort to reassure managers and staff, but also customers, Brito said he expected no cultural clash between the two companies and that the identity of the St Louis-based brewer would be preserved.

"The whole heritage around the brand, St Louis ties, we intend to keep because that is important for the business and for the community and therefore for us," Brito added.

They are likely to mostly oppose a takeover, analysts have said, but one family member, an uncle of the CEO, has said he's open to it. The family's ownership of the brewer has dwindled to the point where it could not veto a takeover, but it does exert some influence over the 14-member board of directors.

If InBev buys Anheuser for $46 billion it will be the largest merger or acquisition this year, excluding spin-offs, and would be the third-largest ever foreign takeover of a U.S. company.

A fund manager at a Boston-based firm with a large Anheuser shareholding, who declined to be identified due to trading restrictions, said he was pleased about the all-cash bid. "It's not clear to me what happens next or how big the fight will be going forward," he said.

He added that there was "some probability of a competing bid because it's not an insane multiple that's being paid."

Flagship Brand

Wachovia analyst Jonathan Feeney said InBev's proposal was equal to 13 times annual earnings before interest, tax, depreciation and amortization for the beer business. Aside from core brands like Budweiser and Bud Light, Anheuser owns 50 percent of Mexican brewer Modelo and 27 percent of China's Tsingtao Brewery.

The company also operates nine theme parks and other properties, and owns companies that supply the breweries with bottles and other packaging materials.

In a recent interview, Michael Roberto, a management professor at Rhode Island's Bryant University, said an acquirer of Anheuser would likely seek to sell some of those "non-core assets".

InBev said it sees making St. Louis the headquarters for the North American region and the global home of Budweiser, which would be the new company's "flagship brand". The new brewer's name would "evoke Anheuser-Busch's heritage", it said.

InBev also said it would invite some Anheuser directors to join the new board and would seek to keep key managers. It said it would maintain all of Anheuser's U.S. breweries.

InBev, with its headquarters in Leuven, Belgium and management from Brazil, also made overtures to Modelo, stressing new opportunities to sell its Mexican beers, such as Corona, around the world.

Whereas Anheuser's business is mostly in the U.S. with exposure to Mexico and China, InBev is strong in Europe and Latin America.

InBev said the deal will be financed with at least $40 billion in debt and a combination of non-core asset sales and equity finance. The finance will be provided by a group of banks including Banco Santander, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, J.P. Morgan and Royal Bank of Scotland.

-- The Associated Press and Reuters contributed to this report

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