Modelo CEO vacates Anheuser-Busch board; sources still see InBev deal chances better than 50-50

By Paul A. Harris

St. Louis, June 20 - Friday's news that Carlos Fernandez, chief executive officer of Grupo Modelo, SA de CV, resigned from the board of Anheuser-Busch Cos., Inc. (NYSE: BUD) rekindled speculation about Belgian brewer InBev NV's $65 per share bid for BUD.

According to a special situations equities source Fernandez's exit cuts the number of BUD directors to 13.

Sources say Anheuser-Busch could be pondering a move to increase its 50% stake in Modelo, thus increasing the price of Anheuser-Busch and thereby, perhaps, move itself beyond the range of InBev's capacity to raise cash in the debt capital markets.

The Modelo scenario notwithstanding, on Friday Anheuser-Busch did announce that it will purchase the remaining 50% ownership of the Crown Beers India Ltd. joint venture from its partner, Crown International.

No prices were disclosed.

Parsing Friday's developments, a stock analyst in the beverage sector, who agreed to speak on background, warned against reading too much into the departure of the Modelo CEO.

"His resignation could mean many things," the analyst said.

"People seem to be reading a lot into it, but there's not very much information out there.

"Modelo has a lot of options in front of them," the analyst continued.

"They are probably discussing their options with both A-B and InBev. Therefore, for Fernandez to have a seat on the board of A-B, and be in on discussions as to what is best for A-B, is probably not in Modelo's or A-B's best interest."

The analyst said that it is conceivable that Anheuser-Busch is maneuvering for a higher bid or a dealbreaker, and upping its stake in Modelo might provide a means to either of those ends.

"InBev commented that they do have the financing in place for the $65 per share bid," the analyst recounted.

"The question is, if there is reason for the bid to go up, how much more can InBev afford?"

Better than 50-50

Earlier in the week Adolphus Busch IV, the uncle of Anheuser-Busch CEO August Busch IV, and the stepbrother of August Busch III, told the St. Louis Post-Dispatch that he estimates a "slightly greater than 50-50 chance" that InBev will be successful in its bid to acquire Anheuser-Busch.

According to the stock analyst in the beverage sector, Adolphus Busch IV is not directly involved in the management of the company, and holds less than 1% of Anheuser-Busch's shares.

Erin Smith, a securities analyst covering food and beverages for Argus Research Co., sees the deal's chances as greater than 50-50.

"I think it's going to be challenging for A-B not to let the deal go through," Smith told Prospect News on Friday.

"The board will have a difficult time trying to demonstrate that the $65 per share offer is not in the best interest of shareholders.

"I think that there is a strong likelihood that the deal will go through, unless the board comes back with a really compelling reason why it should not. And I don't see that right now."

On Friday shares of Anheuser-Busch closed at $60.67, down $0.38, or 0.62% on the day, and approximately 6.7% below InBev's $65 per share bid.

Smith thinks that spread is pretty wide.

"If people were very sure that the deal was going to go through the share price would be a lot closer to $65," she said.

Meanwhile the analyst who spoke on background believes that Adolphus Busch's estimate to the Post-Dispatch, giving the deal a slightly greater than 50-50 chance, is just about right.

"Now that there is a deal on the table, it is my impression that shareholders are somewhat frustrated," this analyst said.

"They're in a place right now where they are likely to accept the offer.

"I think that a more than 50-50 likelihood that it will happen is a good bet right now."

Family motives

Meanwhile Prospect News asked Argus's Erin Smith about the true motives of the Busch family as the InBev situation unfolds.

Is the family genuinely motivated to hold on to the company, or does it merely feel obliged to appear to be defending the livelihoods of its fellow St. Louisans as the last independent major American brewer swims across the gunsights of an overseas company?

"I don't think they're just giving the appearance of wanting to hold on to the company," Smith replied.

"They have a big connection with that company which is why they are hesitant right now.

"There probably are some family members who might feel pretty positive about the price if they didn't have that emotional connection."

Meanwhile on Friday shares of InBev (EBR: INB) fell by 0.71%, or €0.34 per share, to close at €47.60.

Friday's situations took place as the three major U.S. stock indexes were in broad retreat, each sustaining a loss of greater than 1.8%.

The Nasdaq suffered the greatest percentage drop, 2.27%, and closed at 2,406.09, 55.97 lower on the day.

The S&P 500 gave up 1.85%, dropping by 24.9 points to close at 1,317.93.

The Dow Jones Industrial Average fared little better, dropping by 1.83%, or 220.4 points, to close at 11,842.69.

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