Did I say American?  I meant Belgian, or South African, and worse - CANADIAN.  Just kidding you goofy neighbors to the north, no hard feelings eh?  What are we talking about?  Let’s say I’ve had a bad day and on the way home stop at a grocery store to pick up some ice cold beer.  I don’t want that rich boy stuff from Europe and I ain’t drinkin no Mexican beer either.  Naw, gimme a cold can of the American good stuff.  The 3 big brands in this arena are Coors, Miller, and Anheuser-Busch.  I could tap the Rockies with Coors Light but apparently they are talking about the Canadian Rockies as they merged with a Canadian Brewer in 2005.  So I shuffle right to the Miller Lite stand.  Less carbs… better taste… owned by SOUTH AFRICAN BREWERIES?  What the hell guys?  Finally the Bud Light section.  Not great tasting, kind of over-priced, and reeks of “college kegger” but whatever I’ll take it.  Oh wait, Anheuser-Busch just sold out to InBev of Beligium.  Fine then, I grab some Pawtucket Patriot Sam Adams and go home to cry over the loss of “American Beer”

I love Sam Adams, and I’m a big fan of any independent brewery based in the US.  My opinion is they make the best beer on the planet.  However they must now carry a burden they may not be ready for: the great American beer company.  The Big 3 brands are now all owned by foreign companies.  Big deal right?  Their beer is still going to be made in the US, the brands haven’t changed either.  But the profits go back to the parent companies.  Its the profit that goes to shareholders which means a departure of money spent in the states to Europe.  Those profits go to the European owners where it will likely be spent on European investments and consumption.  This literally means that buying a Bud Light will actually move money out of the United States.  This is where the “Made in America” folks would step in, their argument is valid.

I’m not mentioning the sale of Anheuser-Busch to talk about beer, or the global economy; I figured its the perfect opportunity to explain how a takeover happens.  So file this post in the education category of Weakonomics.

So here’s what went down.  Around the end of May there was a buzz (not alcohol induced) around a potential buyout of Anheuser-Busch by Belgian brewer extraordinaire InBev [http://en.wikipedia.org/wiki/InBev]; makers of Bass, Beck’s, St. Pauli Girl, and Stella Artois - among others.  What this means is the accounting folks over in the land that unfortunately borders Germany and France had been looking at the financials of Anheuser-Busch to see if there was an advantage to buying.  Industry consolidation is often triggered by external factors.  In this case the price of grain and oil has spiked so high, InBev was looking for new synergies to save on bulk buying and distribution costs.

News of a potential buyout almost always raises to the value of a stock.  In the Yahoo/Microsoft fiasco, Yahoo jumped up and down daily on news of a potential buyout going forward or falling out.  This is because the offers are usually higher than the current value of the share.  The same holds true with Anheuser-Busch.  In June, InBev approached the board of directors of Anheuser-Busch with an offer of $65 per share.  At the time the stock was trading at $55.  Sensing opportunity get more money the board rejected the sale.  Despite support from many shareholders and some of the Busch family, the deal fell through.  Instead of offering a greater amount, InBev just said “Alright, we’ll just replace the board with another board that will approve the sale”.  This is the threat of a hostile takeover.  Microsoft threatened the same tactic to Yahoo.

Fearing they would be replaced and thus only sell for $65, the board countered in mid-July with an offer of $70, to which InBev agreed.  This was beneficial to both parties: Anheuser-Busch shareholders get more money and InBev doesn’t have to go through the painful process of removing the board.  InBev likely underbid in the first place, just like you might do on a house.

There are a few ways you can buy a company.  Most common is the stock merger.  The buying company will issue new stock that is traded with the selling company at the agreed value.  So if InBev trades for $50 and Anheuser-Busch trades for $100, InBev would trade two shares of their company for one share of Anheuser-Busch.  This keeps the buying company from having to borrow cash to make the purchase.  Then there are cash mergers.  In this case the buying company will just pay for the shares, and you have to give them up.  You can of course use the money you get from them to buy InBev stock, but it is likely only institutional investors would do this, and not the mom and pop folks.  Like before, this would keep a lot of the ownership in Europe.  InBev is doing an all cash deal.

So what still needs to happen?  Well once the Anheuser-Busch approves the offer, it must then go to vote for the shareholders.  All owners of Anheuser-Busch stock get to vote on the sale or not.  Majority rules.  In many cases there are lots of regulatory concerns that must be addressed.  Since this is a foreign buyout, there are probably not many anti-trust concerns.  However I’m sure there is some type of hearing both the EU and US Government will conduct, just to make sure.  Once that happens Anheuser-Busch is no more.  The stock will cease trading on the NYSE (ticker: BUD), and the last great American beer company is gone.

I don’t drink many products from the big brewers, instead favoring the smaller breweries and local selections.  But it is sad to see the end of an era.  Just like I don’t drive a GM, Ford, or Chrysler vehicle, it would be a sad day in American history if all three were bought out by foreign companies.  So long BUD.

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