July 14, 2008 / 4:44 AM / 10 years ago

UPDATE 7-InBev agrees to buy Anheuser for $50 billion-sources

(Adds comments from analyst, consultant, details on Modelo)

By Jessica Hall and Martinne Geller

PHILADELPHIA/NEW YORK, July 13 (Reuters) - U.S. brewer Anheuser-Busch Cos Inc (BUD.N) agreed to a sweetened $50 billion takeover by Belgium-based InBev NV INTB.BR, sources familiar with the situation said on Sunday, creating the world’s largest beer maker.

InBev, which makes Stella Artois and Beck’s, plans to pay $70 per share for the maker of Budweiser, sources said, $5 higher than its first bid.

This deal, which is widely expected to gain regulatory approval, would be the largest in alcoholic drink history and the third-largest ever foreign takeover of a U.S. company.

Anheuser and Inbev were not immediately available to comment.

The combined company will have about $36.4 billion in annual net sales and brew about a quarter of the world’s beer.

The combined company will be called Anheuser-Busch InBev, said the sources, who agreed to speak on condition of anonymity. Anheuser will get seats on the new company’s board, the sources said, but it was not immediately clear how many.

The deal brings an amicable resolution to a month-long saga that was becoming increasingly hostile as the companies traded lawsuits and InBev set the stage to replace Anheuser’s board.

InBev had proposed its own slate of nominees for the board of directors that included Adolphus Busch IV, an uncle of Anheuser-Busch’s current chief executive.

Shares of InBev and Anheuser surged on Friday as news of the higher offer and the negotiations emerged. Anheuser closed up 8.6 percent at $66.50, and InBev closed up more than 7 percent.

Sources said the two companies and their advisers had talked in New York over the weekend, working through details such as the name for the combined company, roles for Anheuser’s executives and the structure of the board. The breakup fees if the deal collapses also were discussed over the weekend, the sources said.

InBev had tried to soothe some of Anheuser’s concerns last month, saying it would keep Anheuser’s St. Louis, Missouri home as the headquarters for the North American region. Anheuser’s main Budweiser beer would also become the new company’s “flagship brand,” it said.

A deal at $70 per share is an about-face for both sides, said Morningstar analyst Ann Gilpin, noting that Anheuser Chief Executive August Busch IV had said he wouldn’t sell the company and InBev CEO Carlos Brito said he wouldn’t go higher.

“It’s better that they reached a friendly deal than going hostile. That can make integration a complete nightmare,” Gilpin said. “Anheuser-Busch knows the U.S. market a lot better than InBev, so InBev needs to retain key management from Anheuser for marketing and distribution.”

To Gilpin, Anheuser shares are only worth $57 on a stand-alone basis, but she said $70 was a fair price to pay, since InBev will be able to cut costs and sell Budweiser and Bud Light — the world’s two top-selling beers — overseas.

Anheuser and InBev already have a distribution deal, whereby Anheuser sells some InBev beers in the U.S. and InBev distributes Budweiser in Canada.

Adding another dimension to any deal was Mexico’s No. 1 brewer Grupo Modelo GMODELOC.MX, which is 50 percent owned by Anheuser. The maker of Corona beer, which has the right to choose its partner, has not yet approved InBev for that role and the two brewers remain in talks, according to sources familiar with the situation.

    Modelo, which does not have the power to veto an Anheuser takeover, declined to comment.


    “It is truly a win/win,” situation, said Tom Pirko, president of beverage industry consulting firm Bevmark. “Both got precisely what they wanted.”

    Anheuser, whose shares have stagnated for 5 years as it failed to expand internationally like its rivals, will get a shot in the arm, its shareholders will get a handsome premium, and InBev will become the world’s No. 1 brewer by volume, Pirko said, beating out London’s SABMiller Plc SAB.L for the top spot.

    Anheuser-Busch’s independence dates back roughly 150 years to the Bavarian Brewery in St. Louis, which Eberhard Anheuser bought in 1860. Several years later his son-in-law Adolphus Busch took over, starting the Busch family’s reign, which was interrupted only once, when Patrick Stokes served as CEO from 2002 to 2006. Stokes is currently chairman of the board.

    Led by Chief Executive Carlos Brito, InBev is known for ruthless cost-cutting, and its advances on a U.S. icon sparked an outcry from St. Louis to Washington, with even democratic presidential candidate Barack Obama weighing in against a deal.

    InBev, which was formed by the 2004 merger of Belgium’s Interbrew with Brazil’s AmBev, is based in Leuven, Belgium and run by a mostly-Brazilian management team. Its portfolio includes more than 200 brands.

    European Union and United States regulators will likely approve the deal, antitrust lawyers in Washington have said, since the brewers do not have much market overlap.

    While Anheuser earns about 85 percent of its profits from the United States, where it controls nearly half the market, InBev has strong positions in Western Europe and Latin America and is growing in Eastern Europe and Asia.

    Anheuser was overtaken as the world’s biggest brewer by volume by InBev in 2004, SabMiller in 2005 and Heineken NV (HEIN.AS) earlier this year with its purchase of part of Britain’s Scottish & Newcastle. (Editing by Maureen Bavdek, Toni Reinhold and Anshuman Daga)

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