One month ago, I wrote an entry on InBev's unsolicited takeover of Anheuser-Busch. At the time, I worried about Anheuser-Busch's attempt to use patriotism in its favor to ward off a potential buyout and suggested that by manipulating consumer loyalty, the company might be setting the average-Bud-drinker up not only for an actual defeat, but for symbolic defeat as well. Compounding the letdown.
By attempting to make this into a potential “Miracle on Ice” scenario (though Belgium isn't quite the USSR), Anheuser-Busch succeeded in getting our hopes up, rallying us behind our red-white-and-blue cans—exactly as they'd wanted to do. Politicians began weighing in on the deal, and even the presumptive democratic nominee reportedly chimed in, saying, "I think we should be able to find an American company that is interested in purchasing Anheuser-Busch if in fact Anheuser-Busch feels that it's necessary to sell.” And what politician wouldn't want to weigh in? This issue was a gift to those in politics (or at a party) hoping to prove their patriotism.
Well, yesterday InBev bought Anheuser-Busch in an amicable deal for $52 billion, offering us yet another example of the reality that no flag speaks louder than cold hard currency. When InBev raised their offer by $5 a share – from $65 to $70 – there was incentive enough.
In the end, this deal was smart for Anheuser-Busch and will no doubt be approved by shareholders on August 1st. Though Anheuser-Busch loses 150 years of family ownership in the process, the company gains a few seats on InBev's board (one for Auggie Busch), will retain all 12 of its American breweries as well as keep St. Louis as North-American headquarters, and will get that much needed leverage in foreign markets. (Not to mention revitalizing A-B's business from the top down.) Of course, for the typical Bud consumer, there will always be subtle reminders of the new foreign ownership, like the company's new awkward company name, for example: Anheuser-Busch InBev. Rolls off the tongue doesn't it? Oh, and one of the Clydesdales has been renamed Ludolf. I joke.
The thing to watch for is how InBev goes about dealing with the $45 billion worth of debt used to finance this deal. There are bound to be cutbacks at Anheuser-Busch, and for an economy already hobbling, lay-offs at Anheuser-Busch won't exactly do wonders for local, state, or national morale.
In conjunction, an important detail that should not be overlooked is that InBev plans to make $1.5 billion in cost savings by 2011. Likelihood is you've heard this before and know what it means. Both Anheuser-Busch and InBev are healthy companies without much overlap, so the transition could be smooth, avoiding mass layoffs. But as we see by InBev's cost savings projection, efficiencies – as in any merger – are king. Even of beers. "The odds that the effect is going to be negative are very high," Don Phares, Professor Emeritus of Economics at the University of Missouri – St. Louis said, "I just don't see any way around that."
The merger will no doubt have a serious impact on the economy in St. Louis, but it is too early to tell how acute that impact will be. In the long term, it seems unlikely that InBev will maintain all of A-B's breweries and sustain headquarter-operations in St. Louis on the same scale it does today. So, as when any city loses a piece of the infrastructure that provides so many jobs for local citizens, St. Louis must turn to other growth industries where expansion is possible, and necessary, like health care and biotechnology, for example.
For the average Bud drinker, little is likely to change. But for the average St. Louisan, change is imminent and could be immense. In light of this, I suggest Americans take a cue and start (or continue) supporting your local brewer.
So there you have it. America is up for sale, and foreign acquisition and investment are being encouraged. In light of Bernanke's projection of a sluggish economy to come, what do you think? Is this smart? Will you continue to drink Budweiser?