Anheuser-Busch and InBev: The war drums commence

By Paul A. Harris

St. Louis, June 26 - Inbev BV's $65 per share, $47 billion bid for Anheuser-Busch Cos., Inc. appeared all but certain to turn hostile as the Thursday session came to a close.

Reiterating its preference for "constructive dialog," Belgian brewer Inbev filed suit in Delaware Chancery Court on Thursday seeking a judgment to confirm that Anheuser-Busch shareholders may remove without cause all 13 members of the St. Louis-based brewers' present board of directors.

"That's obviously something you would do before a hostile bid," a special situations equities analyst told Prospect News on Thursday afternoon.

"They say they strongly prefer a friendly transaction, but it doesn't look as though they are prepared to go away."

In press release, InBev stated that it remained committed to its proposed combination with Anheuser-Busch and its $65 per-share cash offer, "representing an immediate premium of 35% over the unaffected price of the shares," but then added: "Under the Charter of Anheuser-Busch and as a matter of Delaware law, it is clear that the eight directors elected after 2006 are subject to removal without cause through the written consent procedure; the filing seeks to confirm that, as InBev strongly believes, the directors elected in 2006 are also now subject to removal through that same mechanism."

Late in the afternoon Anheuser-Busch took up the gauntlet thrown down earlier in the day by InBev, announcing that has determined that InBev's $65 per share bid is financially inadequate and not in the best interests of Anheuser-Busch shareholders.

"InBev's proposal significantly undervalues the unique assets and prospects of Anheuser-Busch," said Patrick Stokes, chairman of the board for the company.

"The proposed price does not reflect the strength of Anheuser-Busch's global, iconic brands Bud Light and Budweiser, the top two selling beer brands in the world, with Budweiser selling in more than 80 countries today.

"The proposal also undervalues the earnings growth actions that the company had already planned, which have significant potential for shareholder value creation; the company's market position in the United States, the most-profitable beer market in the world; and the high value of its existing strategic investments."

In a letter to InBev CEO Carlos Brito, Anheuser-Busch asserted that InBev's bid fails to adequately factor in Anheuser-Busch's premier, iconic brands, including Budweiser and Bud Light, its market leader position (50% of the U.S. market, according to the Thursday press release from Anheuser-Busch), its growing international partners, including Grupo Modelo and China's Tsingtao, its global brand business and its accelerated earnings growth

Rally 'round the flag

A hedge fund manager suggested that those parsing the InBev bid for Anheuser-Busch might be underestimating the "nationalistic" factor.

"Whenever you have one of these classic American names on the block there's sure to be a fight," the manager said on Thursday.

"They're not going to roll over and die."

In this context the source mentioned investor Warren Buffett, Anheuser-Busch's second-largest shareholder.

However a special situations equities analyst countered that Buffet has been doing most of his deals internationally.

"Although he hasn't said anything so far, he may actually be for this deal," the analyst said.

"Nationalism could play a part," the analyst added. "But [Anheuser-Busch] stock has gone nowhere for so long that, all pride aside, I think people would rather have a higher price, and move on."

On Thursday the St. Louis-based brewer's shares (NYSE: BUD) far outperformed that battered U.S. stock indexes, all of which lost more than 3% on the day.

Anheuser-Busch finished the session down 0.66%, or $0.41 per share, and closed at $61.35.

As it was beating the war drums in Delaware court, InBev's (EBR: INB) shares fell 2.81%, or €1.30, to close at €45.

Modelo (MXK: GMODELOC) shares fell 1.53% and closed at 53.40.

Orbotech to acquire Photon Dynamics

Elsewhere Thursday Orbotech Ltd. announced it will acquire Photon Dynamics, Inc. for $15.60 per share in cash, in a deal valued at $290 million.

The boards of both companies have approved the acquisition, which is expected to close during the second half of 2008, pending customary closing conditions.

In a Thursday press release, Orbotech stated that the Photon Dynamics acquisition, which is Orbotech's largest purchase to date, is a major part of Orbotech's strategy for growth and diversification in its flat panel display business.

On Thursday Orbotech (Nasdaq: ORBK) shares fell 7.23%, or $1.08, to close at $13.86.

Photon Dynamics (Nasdaq: PHTN) shares, meanwhile, gained a whopping 31.06%, or $3.59, to close at $15.15.

Thursday's situations took place against the backdrop of a rout in the major U.S. stock indexes.

The Nasdaq saw the steepest drop, 3.33%, closing at 2,321.37, down 79.89 points on the day.

The Dow Jones Industrial Average fell 3.03%, or 358.41 points, and closed at 11,453.42.

The S&P 500 sustained a 2.94% loss, down 38.82 points to close at 1,283.15.

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