First things first. I promised our US viewers a couple of handy phrases to learn now that Anheuser-Busch has embraced the Belgian/Brazilian combo at Inbev. If toasting your Belgian acquirer: ‘a votre sante’ or ‘ap uw gezondheid’ will suffice – of course being mindful of the need to work out whether they are from the Flemish or Franco side of the country.
It shows a remarkable strength of character to push ahead with a deal of this scale ($52 billion) in this environment – let's hope fortune favors the brave. The promised synergies look attractive at $1.5 billion a year for the next 3 years, and InBev has shown a track record of extracting the best from deals so the market should be confident they will execute.
Elsewhere...the promise of government support for US home lenders Fannie and Freddie has thrown a bit of two-way trade back into the market. The news immediately supported the dollar, pushed money out of the safe-haven bond trade and forced fund managers to cast another eye over the yields being thrown off by financials.
Back at the start of the year a wise money manager told me that the most critical decision this year will be when/whether you go back and buy the banks. Given the price action in the financials today there are plenty of investors who feel that decision may be close at hand. The UK banks have also been lifted by the announcement from mortgage bank Alliance and Leicester that it is in discussions with a potential bidder – later confirmed as Santander. The logic runs that if trade buyers see compelling value then the equity investor probably also should be taking a keen interest.
Robin Griffiths at Cazenove Capital charted a summer rally and confirmed this could be the start of it...however, he thinks the markets will go lower again heading into September/October. Such a rally could get underpinned by a fresh wave of M&A – there has also been activity in the German tyre market this morning with Continental.
Hans Redeker at BNP Paribas was our guest host this morning and mooted the idea that Washington could be blowing the dust off a plan to intervene on the side of the dollar. It's an intriguing suggestion and would fit the timing of a turn in the commodities-related trades that have seen the dollar driven lower and the US economy beaten about by higher oil prices. It would help take the heat out of energy prices without the Fed being called upon to lift official US interest rates. This is clearly a story to watch.
If the greenback is set to make gains from here then let's hope the management team at InBev have already bought their dollars!
PS Here is some feedback you sent since I posted this on Monday:
The Flemish View
In Flanders they say 'op uw gezondheid' (not 'ap ...'), but more common is 'schol' (informal) or 'proost' (formal), because they are shorter and we're always very thirsty.
Considering the current governmental problems in Belgium and the fact that the headquarters of Inbev are located in Leuven (the Flemish part), you may also leave the French toast out :)
Will All Beer Be the Same?
I dislike the idea of the A-B takeover on multiple levels, but adding another level of profit-taking and bureaucracy will soon relegate Budweiser to the same status of Pabst.
InBev has bought out many Europeans brands and then closed their breweries, making the beers in large breweries that turn out numerous beers in the same plant. Only difference is some of the recipe and the can or bottle with the label of the old brewery.
There will be no difference since the primary purpose is the bottom line and you get that by consolidation of facilities, automation of process and cutting staff.
In the end you will not be able to tell the difference between a Bud and an Oranjeboom.
If it goes through I will, like many others, vote with my feet.
I own stock in both Anheuser-Busch and Wrigley's. I supported the sale of Wrigley's to Mars, taking it private as a stand-alone division of Mars, as a combination of two American confectionary companies, still run buy the founders' families, to protect Wrigley's from the pressure of public stock ownership/shareholder interests run by short-term thinking, and the ability of the company to retain what it could of the "family corporation" model.
IMHO, the proposed merger of Anheuser-Busch and InBev is exactly the sort of event that the Wrigley purchase avoided. I respected Warren Buffett's support of the Mars/Wrigley deal; in just such a way I am troubled by his support of the A-B sale to InBev and his abandonment of the family-led managers of this quintessential American company.
He generally buys into companies whose management and business practices he likes--why not support them now? Yes, InBev has some very old and respected beer names in its portfolio, but eternal growth is not always possible; A-B's "stagnating" share price in the low $50s (now driven up by merger talks) and continued profitability is nothing to sneeze at.
Long live an independent Anheuser-Busch!
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